When a blue wave hits a red wall
If the Democrats gain the two new Senate seats ... Maxine Waters and new Senate Banking Chair Sherrod Brown will unleash a flood of hard left legislation.
I have been in and around politics, from the Texas Legislature to the U.S. Congress, since the late 1970s. I have worked on several election campaigns. I was in the tank with almost all of the political observers, pundits and pollsters in the belief that the election would be a massive repudiation of Donald Trump, and Democrats would roll to victory all over the country.
Chuck Schumer was going to lead the Senate and do away with the 60-vote rule. The Supreme Court would have more justices, two new states would be enshrined in the union and all manner of progressive legislation would emanate from Capitol Hill to be signed by Joe Biden in elaborate ceremonies at the White House. Elizabeth Warren, or someone meeting with her approval, would be Treasury Secretary. I was bracing for an avalanche of federal mandates that would fall hardest on community banks.
Boy, was I wrong! As I write this, the Senate has 50 Republicans and 48 Democrats. Control of the Senate will be determined by Georgia voters in runoffs in two races on Jan. 5. The odds are that Republicans will win one or both seats, meaning that Mitch McConnell will most likely still run the Senate. Republicans gained seats in the House. Speaker Nancy Pelosi has the narrowest majority that her party has had since the 1930s. Americans chose divided government.
Trump came within 80,000 votes of another Electoral College victory. In his defeat, he may be the only presidential candidate who lost the race but had coattails that benefitted his party in state and federal races across the U.S.
He improved his share of both Latino and Black voters; 20% of African American men voted for him. Where he lost votes was with college-educated white males.
Voters of Cuban and Venezuelan ancestry voted out two Democratic incumbents in South Florida. Trump won more than 35% of the Latino vote nationally and over 40% in Texas. South Texas voters increased their support of Trump compared to his numbers in 2016.
In Zapata County, consisting of mostly rural border communities with a lot of oil and gas jobs, 52% of the voters favored Trump. The lesson for Democratic political operatives is that the Latino vote is not monolithic, and many voters may not buy the progressive notion that racial and ethnic identity should dominate all political decision-making.
For the first time in more than 20 years, many believed that Texas was in play and poised to go from red to purple or blue; $50 million of out-of-state money was spent on Texas state house races alone. The goal was to give the Democrats control of the Texas House in order to give them advantages in the redistricting battles that will take place later in 2021.
The result? Exactly the same numbers that existed before the election: 83 Republicans and 67 Democrats. One Democrat defeated a Republican and one Republican defeated a Democrat. Sen. John Cornyn easily won his election and several congressional Republicans held off challengers. Will Hurd is retiring from his seat in a swing district that stretches from San Antonio to El Paso. Hurd barely survived a 2018 challenge from Gina Ortiz Jones. She was again on the ballot this year with a lot of money from outside of Texas but was defeated by Republican Tony Gonzales.
The infighting within the Democratic party has already started. Moderate Democrats have accused the progressive wing of causing the losses of congressional seats because of public pronouncements on defunding police and banning fracking. AOC has responded by telling them that the lost races were due to the lack of outreach to woke voters.
As Biden is preparing his transition, the left is accusing him of staffing his team with “corporate insiders.” Progressives believe they were loyal foot soldiers in helping Biden get elected. It is not hard to envision that these folks will again take to the streets early on in the Biden administration.
What this means for banking
What does this mean for banking policy? If the Democrats gain the two new Senate seats, Kamala Harris will be the 51st vote. Maxine Waters and new Senate Banking Chair Sherrod Brown will unleash a flood of hard left legislation. Biden nominees will sail through the Senate.
If the Republicans maintain control of the Senate, the legislative ambitions of the House will be thwarted, meaning that the pressure will be on the regulatory agencies to push a leftward agenda.
Leandra English is the transition point person for the CFPB. She worked for Richard Cordray at the agency in the Obama era. Cordray appointed her as the director when Trump won, which resulted in federal litigation that was not resolved until Kathy Kraninger was confirmed by the Senate.
Biden will replace Kraninger and her replacement, whether in an acting capacity or after Senate confirmation, will access the more than $600 million in annual funding from the Fed and lawyer-up to go after financial institutions.
At the OCC, Trump has nominated acting Comptroller Brian Brooks for Senate confirmation. It is unclear whether the lame duck Senate will act. There will be a new Treasury Secretary and new Fed board members. Biden will have to work with Mitch McConnell to seek agreements on appointees that can be confirmed by a Republican Senate.
From the perspective of community bankers, gridlock is a good thing. The unknown is how far left the federal banking agencies will go but I anticipate that many actions will be challenged in the courts. In the Trump era, dozens of executive branch actions were challenged in friendly federal courts. I can foresee the Republicans returning the favor.