This month’s primary election defeat of Eric Cantor, House majority leader and Republican representative for Virginia’s seventh U.S. congressional district, by a Tea Party candidate and political outsider stunned many in Washington. But it underscores a growing political problem for the Grand Old Party — one that Republicans have been grappling with since at least 2000, when political strategist Karl Rove got Ivy League–blueblood-turned-Texas-cowboy George Bush elected president.
Republican candidates need Wall Street’s money to win elections. They also need Main Street’s ground game to bring out the vote, especially in primary battles over more-conservative and less-wealthy districts. Both Wall Street and Main Street Republicans claim allegiance to a brand of libertarianism that author Ayn Rand exemplified in Atlas Shrugged, her 1957 novel describing an American dystopia. Their dilemma could be the lifeline that a certain New Jersey governor has been looking for.
The rupture within the Republican Party base has become more apparent since 2008, when the collapse of the banking sector almost destroyed the global economy and Wall Street needed a massive bailout by the federal government. The income divide between the wealthiest 0.1 percent and everyone else has kept growing. Although the far right has become more populist and anti–Wall Street in its rhetoric, campaign finance laws that let supporters write bigger checks have made the GOP even more dependent on deep-pocketed corporate donors.
“Cantor fell into this trap that leaders fall into,” says Michael McDonald, a political science professor at George Mason University in Virginia: needing to spend time in Washington and elsewhere raising money for GOP candidates while growing estranged from his own constituents. “Cantor was deeply disliked within his own district.”
Cantor’s relationship with Wall Street and the financial services sector runs deep. Not only has he served on the House Financial Services Committee, he has fought the so-called carried interest tax, which long-term-asset owners like private equity managers oppose, and was instrumental in backing the legislation that bailed out Wall Street in 2008 and holding the line on further bank regulation in the subsequent debate over banking reform.
His wife, Diana Cantor, is a principal at Alternative Investment Management, the respected, $1 billion New York–based fund-of-hedge-funds and private equity manager headed by Jonathan Harris, a former Goldman Sachs Group executive. Before joining AIM in 2010, Diana Cantor was a managing director at private wealth advisory firm New York Private Bank & Trust Corp.
In what is now widely perceived as a political misstep, Cantor spent the morning of the June 10 primary election at a Starbucks in Washington, holding his monthly fundraising coffee meeting with lobbyists. In this election cycle Cantor, who raised $5 million directly and received other support from political action committees, was among the top congressional beneficiaries of Wall Street largesse. His top three sources of campaign funds for the 2013–’14 primary were alternative-investment manager Blackstone Group, event-driven hedge fund firm Scoggin Capital Management and Goldman Sachs, according to data complied by OpenSecrets.org, a Washington-based nonprofit. Individuals at New York private equity firm Apollo Global Management and Canyon Partners, a Los Angeles–based hedge fund firm, also were generous supporters.
Wall Street’s love wasn’t Cantor’s only problem. Changes to the electoral map had made his seat even more conservative, something that left the former party whip more vulnerable to a primary attack from the GOP’s right flank. Cantor was criticized for not spending enough time in his district, which isn’t far from the Washington Beltway, and polling by his campaign seems to have miscalculated exactly how exposed he was.
The burning issue that gave Cantor’s opponent, David Brat, an edge wasn’t the economy but immigration reform. That’s another divisive issue for the Republicans and one that Wall Street and much of corporate America, including the technology industry, tend to support because they want educated non-American workers.
Tension between populism and capitalism dates back to the Founding Fathers and bubbles to the surface at various times, George Mason’s McDonald notes. In Virginia, Cantor isn’t the first victim of this most recent populist resurgence. “This is something that has been going on in Virginia politics since at least 2005,” McDonald says. It’s also more prevalent in primary and midterm elections, where low voter turnout gives fringe candidates with a core group of committed supporters an advantage.
Brat, the Randolph-Macon College economics professor who defeated Cantor in the primary, lampooned the majority leader for his support of the big banks. As Republic Report writer Lee Fang notes, much of Brat’s campaign vitriol targeted those institutions. “All of the investment banks up in New York and D.C., they should have gone to jail,” he repeatedly said in his stump speeches. He also took potshots at Cantor’s cozy relationship with pro-business lobbying groups the U.S. Chamber of Commerce and the Business Roundtable. A free-market economist, Brat argued that Cantor and Washington’s Republican elite were too beholden to lobbyists and banks to truly unfetter the economy.
After Brat won the primary, Business Insider examined his recent areas of research and found a 2010 paper he co-wrote titled “An Analysis of the Moral Foundations in Ayn Rand”. Brat has served as director of the BB&T Program on Capitalism, Markets and Morality at the University of North Carolina at Greensboro. This program was endowed by John Allison, former CEO of financial services holding company BB&T Corp., a major contributor to the Ayn Rand Institute and president and CEO of the Cato Institute. Both of those policy centers are pillars of right-wing libertarian thinking, and Rand still has many devotees at the center of the Wall Street–Washington power vortex. Former Federal Reserve Board chairman Alan Greenspan was one of her acolytes.
For Wall Street Republicans, Rand’s libertarianism represents a world free from big government, taxation and what they perceive as onerous regulations that hurt business development, kill jobs and impede the free flow of capital. Some of them, including hedge fund manager John Paulson and investment broker Peter Schiff, are trying to develop their own economic utopia in Puerto Rico, in large part as a reaction to what they see as an antibusiness climate in the U.S.
For the Tea Party and its supporters, libertarianism means a world free from special-interest groups, lobbyists and bank bailouts. There are plenty of ironies and contradictions in these two competing narratives. Wall Street wants government out of its business until it needs government to bail its business out. The Tea Party is opposed to deep-pocketed donors unless those donors, like U.S. industrialists the Koch brothers, support its cause.
For Cantor and other Republicans looking to run in 2014 and 2016, the rifts are now so great that it’s hard for a candidate to keep both constituencies. If politicians are too populist in their rhetoric, they risk alienating people like Paulson, an important donor to 2012 GOP presidential candidate Mitt Romney. Failure to take the populists seriously enough, as Cantor did, means risking primary election defeat.
New Jersey Governor Chris Christie looked like a hot ticket for the GOP 2016 presidential bid because he was the rare Republican who could paper over the cracks — before Bridgegate, the scandal that saw members of his staff engineer politically expedient bridge lane closures.
Christie is no stranger to Wall Street and its donors, many of whom have been among an elite group of backers encouraging him to try to exchange the governor’s mansion for the White House. To win the governorship in 2009, Christie defeated Jon Corzine, former CEO of Goldman Sachs, who would go on to bring down broker-dealer MF Global in the largest bankruptcy of a financial services firm since Lehman Brothers Holdings collapsed in 2008. With his weight issues and his willingness to get folksy, Christie appealed to regular Joes. No wonder he was dancing with the host on The Tonight Show Starring Jimmy Fallon just two days after Cantor’s primary defeat. During the broadcast Christie dismissed the suggestion that his friend Cantor’s loss might have any broader meaning for the GOP. But who knows? Christie’s party might yet need him.
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Follow Imogen Rose-Smith on Twitter at @ImogenNYC.
