Republican senators are offering a united front to block a Democratic bill that would revamp the rules for Wall Street. But the GOP's hard stand against the bill is not without political peril, party strategists warn — and it has the potential to hurt the party with voters this fall.
"I think most people believe that Wall Street got away with something," says Reed Galen, a Republican consultant who was deputy campaign manager for Sen. John McCain's presidential bid.
On Tuesday, for the second day in a row, Senate Republicans blocked the financial overhaul bill from moving to the Senate floor for debate. The vote was 57-41, three short of the 60 needed for Democrats to advance their measure. A third test vote is expected on Wednesday.
On Monday night, all 41 Senate Republicans — plus one Democrat — blocked the bill . But no matter what they think about the details of the bill, Republicans have to be careful of appearing to be the party of the "wealthy, detached elite," Galen says.
The GOP also should be wary of playing into the hands of Democrats, who are privately pleased that they have been handed much-needed fodder — and a simple message — for the fall midterm elections. Republicans expect to make significant gains on Capitol Hill.
Immediately following Monday night's test vote, Democrats unleashed a barrage of attacks on the GOP. The overarching theme was simple: Republicans are "siding with Wall Street" over "hard-working Americans."
The Republican response? That they are working on an alternative bill to what leaders characterize as the Democrats' "permanent bailout" proposal.
The Danger Of Seeming Too Cozy With Wall Street
Republican opposition to the financial overhaul comes at a time of continuing anger at Wall Street and Congress. New polls show that a large majority of Americans support tougher regulations of bank and financial institutions.
"This is a dangerous position for Republicans," says Morris Fiorina, a senior fellow at Stanford University's conservative Hoover Institution. "Antipathy towards Wall Street runs very high, and appearing to do the bidding of big Wall Street banks would not be a winning electoral strategy," he says.
“I feel Republicans sincerely have problems with some parts of the bill, but perception is reality," Fiorina says. "Even if they have legitimate objections, they run the risk of being portrayed as in the pocket of Wall Street."
"They are caught between politics and policy," he says.
The excesses of Wall Street and their damaging effects were underscored at a Senate hearing Tuesday, less than 24 hours after the Senate's first failed test vote on the financial overhaul legislation. Senators quizzed Goldman Sachs officials over the firm's strategy to profit from the meltdown of the housing market. The government has accused the firm of fraud.
Adding to the GOP's message problem: A report Tuesday by The Wall Street Journal found that, for the first time since 2004, "the biggest Wall Street firms are now giving most of their campaign donations to Republicans."
The Journal analyzed campaign giving by 12 of Wall Street's biggest firms, including Goldman Sachs, which in the first three months of the year gave 52 percent of its donations to Republicans.
Scores of economists — as well as lawmakers on both sides of the aisle — harbor very real concerns about the Democrats' bill: that it doesn't go far enough; that it fails to address the underlying problems that caused the nation's economic meltdown.
But, says Galen, Republicans still need to avoid "being Dr. No on everything."
Attempting to deny President Obama and Democrats a win on their health care overhaul bill, he and others say, is vastly different from appearing to stand shoulder to shoulder in opposition to reining in Wall Street — regardless of whether the current legislation actually achieves that.
What's The Big Deal?
But Charles Calomiris, a Columbia Business School professor and scholar at the business-friendly American Enterprise Institute, argues that 2010 is destined to be a "good year for Republicans." Opposing the financial overhaul, he says, is unlikely to change that forecast.
"I don't quite get why this is supposed to be such a scary thing for Republicans," he says. "I could give a pretty good speech about why it's not."
"The question is how the bill's failure would play to the Republican base, as opposed to the swing voter in different states and districts," he says.
Calomiris was among those who last week believed — based on private feedback from senators and others in the government bureaucracy — that the two parties were closing in on a bipartisan deal. But the path to agreement was apparently blocked by Democrats' insistence on including a controversial provision that would force Wall Street banks to spin off their derivatives divisions.
Calomiris sees the derivatives proposal as a Democratic attempt to create an election issue, rather than a bill.
But Democrats have the advantage of being able to verbalize a simple political message. "In politics, if it takes more than two sentences to explain something, you're in trouble," the Hoover Institution's Fiorina says. "It's just easier for Democrats to make their case."
Some political analysts think both parties will angle for a few more political haymaking days before settling on a measure that could attract the GOP votes needed to pass a bill.
That would give Democrats time to link Republicans with Wall Street.
And it would give Republicans time to say they pushed back on an Obama initiative and forced changes before voting for a measure — or the concept of a measure — the public clearly wants.