Main Street turns against Wall Street
A populist backlash is changing America's political climate. Inflamed by the financial crisis and bailouts, a form of class warfare could haunt business leaders for years to come.
Last Updated: September 28, 2008: 11:03 AM ET
NEW YORK (Fortune) -- In one frenzied month Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke remade Wall Street. Along the way they may also have recast American politics. A month of historic government interventions shows signs of triggering a political version of climate change - unleashing a new era of class fury that could hurt U.S. companies, business leaders, and wealthy investors for years.
"A potential calamity," predicts Democratic pollster Doug Schoen. "If the reactions we're seeing hold, we could have real spasmodic anger directed at businesses and corporations." And the timing will have consequences, says financier and onetime GOP presidential candidate Mitt Romney: "Unfortunately, politicians have seized on the politics of envy," he told Fortune, "and they are stoking it this election year like I've never seen in my lifetime."
Compared to this, Enron was a warm-up exercise. For all the public outrage over accounting scandals seven years ago, the result in Washington was limited to a financial reporting rule that most Americans have never heard of (though many in the business community still consider Sarbanes-Oxley a destructive overreaction).
By contrast, the implosion of Wall Street, followed by Paulson's escalating series of multibillion-dollar rescues, has fired up populist sentiments that were already building in American politics, promising to reshape legislative battles over everything from tax and trade policies to federal regulation. Union leaders like the AFL-CIO's John Sweeney suddenly sound as if they're in the mainstream of public opinion with statements like this: "One thing is certain. No one - no politician, no investment banker, no television commentator, no economist - should be able to say again with a straight face that here in the United States we just let markets do whatever markets do and everything works out for the best."
Washington hath no fury like Middle America scorned - and there's reason to think it will only get uglier. The government's massive new financial commitments will severely tie the next President's hands in addressing middle-class concerns.
"The next President will have to temper expectations a lot," says Middlebury College economist David Colander, "far beyond what either of the candidates has been willing to talk about."
If that means Republican John McCain gives up on letting the upper middle class keep the Bush tax cuts, it also means that Democrats will have to stop promising ambitious spending programs. Barack Obama rightly says it would be "irresponsible" not to review his spending menu - which includes making health care universal - in light of this new fiscal reality. As for problems like Medicare and Social Security? They'll have to wait.