Americans believe that they have the world’s freest and best political system; it’s just the government and the people who run it that they despise. The scorn is particularly intense for Congress, and not without reason: political changes have undermined whatever dignity and respect members of Congress once had. While increased polarization prevents them from addressing urgent national problems, the rising cost of campaigns makes them more dependent than ever on fund-raising from donors with deep pockets. No wonder they appear to be ineffectual, money-grubbing, and submissive to special interests: the degraded image is just a by-product of the political circumstances of our time.

The financial crisis, the recession, and the anemic recovery have done nothing to dispel popular distrust. When it bailed out some of the nation’s biggest financial institutions after the collapse of Lehman Brothers in September 2008, the government may have staved off a total economic collapse, but it confirmed for many Americans that moneyed interests get help that ordinary citizens do not receive. Beyond the immediate emergency, the financial crisis also set up a critical test of governing capacity: could Congress and the incoming Obama administration take advantage of the crisis, defy cynical expectations, and adopt effective legislation to restore financial stability and prevent another meltdown? Both the new president and congressional leaders pledged to make that goal a high priority at a time when Democrats would have substantial majorities on Capitol Hill and public opinion surveys showed broad support for reining in Wall Street. But financial reform posed a difficult test for several reasons—the political power of the industry, the complexity of the issues, and the complicity of leading Democrats in the policies that helped to bring about the crisis.

The financial crisis, the recession, and the anemic recovery have done nothing to dispel popular distrust.

Even among special interests, finance is special. According to the Center for Responsive Politics, which tracks political donations, “the financial sector is far and away the largest source of campaign contributions to federal candidates and parties.” Thanks in part to federal policy, finance has become the dominant sector of the economy, increasing its share of total domestic profits from 15 percent in the early 1980s to 41 percent in the early 2000s. The financialization of the economy promotes the financialization of politics, as money finds its way to power. The 2008 crisis made some new regulation likely, but the industry’s leaders were dead set against any changes they saw as threatening their profits, and they were prepared to spend heavily on lobbying and political contributions to ensure that wouldn’t happen.

The complexity of financial policy also encourages congressional deference to Wall Street. The ultimate basis of finance’s power is structural: if governments adopt policies that genuinely threaten financial markets, capital will migrate elsewhere, credit will tighten, and economic growth will suffer. But the more complicated the markets become, the more difficult it is to know where the danger point lies. Complexity amplifies the industry’s influence in discussions about alternatives, because its CEOs and lobbyists can make inflated claims of perilous repercussions from change that legislators do not know enough to discount. Technical complexity also limits countervailing public pressure to resist Wall Street’s demands.

Although Democrats saw the 2008 crisis as requiring new rules, the party’s leaders had championed financial deregulation during the 1990s and were eagerly and successfully competing with Republicans for the industry’s campaign contributions. In 1999, Bill Clinton and his economic advisers, as well as top Democrats in Congress, had supported the legislation repealing Glass-Steagall, the Depression-era law segregating commercial banks (and their federally insured deposits) from investment banking. “Removal of barriers to competition,” Clinton had declared on signing the repeal, “will enhance the stability of our financial services system.” Removing those barriers did exactly the opposite. Clinton had also signed legislation in 2000 barring any regulation of financial derivatives, which was the market that would be at the center of the crisis eight years later. In 1995, Senator Chris Dodd of Connecticut had even played a leading role in overcoming Clinton’s veto of legislation that fulfilled one item in the Republicans’ Contract with America by making it more difficult to prove private securities fraud. A longtime booster of Wall Street who became chair of the Senate Banking Committee in 2007, Dodd would have a critical role in financial reform after the crisis. And Barack Obama brought back to the top ranks of economic policy-making the very people who had advised Clinton to support financial deregulation.