Wall Street won't let Trump steal the election
What recent American history suggests about a potential crisis of democracy
The megabank JPMorgan told clients this week that "in the event of a [Joe] Biden victory, it is unclear what an antagonistic transfer of power would look like." It's a comment — hardly reassuring — that was likely provoked by President Trump again declining to commit to a peaceful transition of presidential power if he loses to the Democratic nominee in November.
Or maybe December. Well, we better hope it's no later — December 14, to be specific. That's when the Electoral College electors meet to cast their ballots for president and vice president. And plenty of the scary electoral scenarios now swirling about concern that process. In "The Election That Could Break America," Barton Gellman, a staff writer at The Atlantic, reports that President Trump's "state and national legal teams are already laying the groundwork for post-election maneuvers that would circumvent the results of the vote count in battleground states." This could result in a chaotic Electoral College vote, perhaps finally settled by Vice President Mike Pence. "To a modern democratic sensibility, discarding the popular vote for partisan gain looks uncomfortably like a coup, whatever license may be found for it in law," Gellman writes.
Among the other chaotic scenarios being floated as realistic possibilities are things like a long delay before all votes are counted, a replay of the 2000 Florida recount but in multiple states, and candidates claiming premature victory. But what Gellman describes is much closer to the extralegal "Trump refuses to leave" scenarios that some Democrats imagine ends with the Secret Service dragging the 45th president from the White House — perhaps with the just-inaugurated 46th looking on and shaking his head.
There is, however, a key difference between a chaotic election — something like 2000 but crazier — and an election that is widely perceived as fundamentally illegal and illegitimate. #FakePresident. And it's my guess Wall Street would also view that as a key difference. In recent weeks, Washington analysts have been paying a lot more attention to the potential financial fallout from an election where the winner isn't known for some time.
A review of 2000 should be encouraging. Despite national anxiety over George W. Bush vs. Al Gore and the Florida recount, the whole affair was pretty much a non-event for Wall Street. A recent analysis from the widely followed research firm Cornerstone Macro notes that the stock market had been falling before the election, kept falling during the six weeks of political uncertainty, and continued its downward trajectory after the U.S. Supreme Court decided in Bush's favor. If election uncertainty had been a big factor driving the markets lower, the final ruling should have probably nudged markets higher. But there was no "relief rally," suggesting markets were paying a lot more attention to the slowing national economy.
But what if President Clinton had stepped in, declared some sort of national emergency, and appointed Gore his successor? I think there's good reason to think financial markets would have gone haywire at such a constitutional breach. And I think that would also happen today under any scenario that smells like a coup. U.S. stock and bonds make for great investments because America is a rich, powerful, and productive country. But not just that. It's also a politically stable and democratic country where the primacy of the rule of law gives investors certainty. The most recent World Economic Forum competitiveness report ranks the U.S. 12th globally for "checks and balances" or governance. This includes things such as judicial independence and freedom of the press. A new analysis by Sangai Bhagat, a finance professor at the University of Colorado, Boulder, also finds a "significant positive relationship" between economic growth and the rule of law in a country, which includes things like the quality of contract enforcement, property rights, the police, and the courts.
A legally dubious election might make investors fundamentally rethink America's economic potential and financial worth, much like the end of the Cold War encouraged investors to value America much more highly, as represented by the stock market's price-to-earnings ratio. A reasonable scenario is that any 2020 funny business would send global markets reeling, particularly stocks. And the recent political history of the United States suggests Washington would pay close attention. During the global financial crisis, Congress approved a massive bank bailout in October 2008 just a few days after a downvote caused markets to plunge. Many investors also believe — or at least they did at the time — that Washington decided to bail out AIG in September that same year after declining to rescue Lehman Brothers a day earlier because the decision sent stocks tumbling.
Financial crisis 2008, meet political crisis 2020 — and the market reaction might be much the same. With the economy still recovering from the pandemic, the last thing it would need to end the year is a financial collapse to match the political chaos. If that happened, one could imagine the tremendous pressure every rich political donor in the country — not to mention all us with a 401k — would bring on Trump, if he were widely perceived as the loser, to concede or otherwise obey any legal rulings. Don't worry Democrats, Wall Street has your back. Probably.