This year's congressional elections hold considerable potential to reshuffle power on Capitol Hill. Neither the Democratic majority in the Senate nor the Republican majority in the House has a secure grip on control of its respective institution. For the financial sector, the stakes include the future of the Dodd-Frank regulatory framework and the composition of the key committees overseeing financial services industries.
Congress, indeed, is one of the few institutions rivaling Wall Street in unpopularity at present. An April average of polls tracked by the website Real Clear Politics showed job disapproval ratings for Congress at 78% and approval ratings at 14%.
Remarkably, even this dismal public assessment was a slight improvement over polling results earlier in 2012 and in the last five months of 2011, which tended to put congressional disapproval ratings in the low 80s. Prior to August of last year, those negatives had been fluctuating in the 60s and 70s.
Last summer's debt ceiling conflict appears to have been an important factor in souring the public about Congress. However, the upswing in negatives continued after a compromise agreement was passed in early August, which suggests that both the standoff and the compromise irritated significant portions of the public.
Against this backdrop of widespread popular disenchantment, the two major parties are seeking to protect majorities that could prove fragile. In the Senate, the Democrats currently have a de facto 53-47 majority (two of those seats are held by independents who are part of the Democratic caucus). This year, 23 of those seats are up for election. Senate Republicans, by contrast, have only 10 seats at risk in November.
In the House, the GOP now holds 242 seats, and so would need to lose 25 in order to fall short of the 218 needed for a majority. Although many analysts have argued that a shift of that magnitude is unlikely this year, it would hardly be unprecedented; the Democrats lost 63 House seats in 2010. House Speaker John Boehner recently caused a stir by stating there is a "one-in-three chance" of the Democrats winning back the chamber.
National Tides
The presidential race promises to be a big factor in how the congressional races turn out. A victor at the top of the ticket might have "coattails" on which legislative candidates can ride. One concern expressed by Boehner was that Republican House candidates might fare poorly in "orphan districts," areas where GOP turnout may be weakened since they're in states that President Obama can be confident of winning.
In early May, the Intrade prediction market gave a 27% chance to the 2012 elections resulting in a Democratic president, a Democratic Senate and a Republican House — the status quo, in other words. The market put a 23% chance on a GOP sweep of the presidency and Capitol Hill, while attributing the next greatest likelihoods — 17% and 15%, respectively — to a Democratic president with a GOP House and Senate, or alternatively to a Democratic president with Democratic control of both chambers.
The market assessed at around 9% the chance that the White House will shift parties while neither house of Congress does so, and put in low single digits the chances of a Republican president facing either two Democratic chambers or getting elected while the two parties swap control of the House and Senate.
Mitt Romney has stated an intention of repealing the Dodd-Frank legislation, but has said little about what regulatory framework he would put in its place. A Romney victory accompanied by GOP control of both houses of Congress would make a sweeping repeal of Dodd-Frank plausible. At the other end of the spectrum, an Obama victory with Democrats in charge of both houses essentially would cement Dodd-Frank into place, curbing efforts to limit its impact.
