Stocks Tumble for Third Day as Dems Bail on Bernanke: Dow Sheds 2.1%

Stocks fell heavily again Friday, with the Dow losing 2.1%, bringing its three-day decline to 552 points. The S&P fell 2.2% and is now in negative territory for the year after losing 5.1% in the past three days. The Nasdaq tumbled 2.7%.

Traders continue to sell the news of "stronger-than-expected" results from big-caps like American Express and Google. The S&P has now fallen 4.8% since Alcoa kicked off earnings season on Jan. 11, Bloomberg reports.

The more recent selloff is being driven by broader concerns that gripped the market this week: Fears of a populist backlash in Washington D.C. that would both cripple the financial services sector and deny Ben Bernanke a second term as Fed chairman.

With President Obama's proposals to reign in banks fresh in traders' minds, the chatter on Friday was about whether Ben Bernanke will survive a pending reconfirmation vote in the Senate. Financial markets famously hate uncertainty and are recoiling at the prospect of Bernanke being replaced, especially since it's pretty certain whoever replaces him will adopt tighter monetary policy - more especially since famed inflation hawk Paul Volcker appears ascendant among Obama's economic advisors.

Financial stocks like JP Morgan were among the hardest hit by the turn of events; the S&P 500 Financials Index fell 6% over the past two days, its biggest decline since September, according to Bloomberg.

Beyond stocks, such concerns were reflected by weakness in commodities that have benefited from Bernanke's easy money policies, most notably gold and oil. (China's moves to restrain bank lending and worries about Greece's debt crisis are also putting a crimp on the "reflation trade".)

Bailing on Ben As discussed here, Bernanke's term as Fed chairman expires on Jan. 31. While opposition from those who support a Congressional audit of the Fed has delayed his reconfirmation vote, Bernanke was widely expected to be approved; then came Tuesday's political shockwave out of Massachusetts.

The victory by Republican Scott Brown in the race to fill Ted Kennedy's Senate seat did more than merely signal the demise of Obama's health-care reform. The election results caused panicked Democrats to determine they'd lost in the Bay State because of their failure to take on Wall Street. With the President adopting a more populist stance, many fellow Democrats determined there was little political downside to opposing Bernanke, one of the chief architects of the bailouts of 2008-09.

On Friday, a number of Democratic Senators, including California's Barbara Boxer and Wisconsin's Russ Feingold, joined North Dakota's Byron Dorgan, Vermont Independent Bernie Sanders and a handful of Republicans in publicly declaring their intention to vote "no" on Bernanke.

According to The Huffington Post, at least 10 other Democrats are "undecided," including Senate Majority leader Harry Reid of Nevada. (As with the health-care bill, 60 votes are needed to block an expected filibuster of Bernanke's reappointment.)

By publicly opposing Bernanke, Democrats are bucking their party's leader, President Obama, who expressed support for Bernanke on Friday. Obama "continues to think he is the best person for the job and will be confirmed," White House spokesman Bill Burton told reporters.

In the end, Bernanke probably will be reconfirmed, especially if politicians get a sense their opposition is contributing to the Dow's swoon - similar to Congress' reversal on TARP after initially voting it down in September 2008.

But a lot of water has flown under the bridge since Lehman's failure, not to mention trillions of taxpayer dollars. Not coincidentally, the Senate this week also debated legislation to wind-down the TARP program and raise the U.S. debt ceiling by $1.9 trillion to $14.3 trillion.

Suddenly, it seems, Congress is starting to realize they're spending an awful lot of the people's money - and the people don't like it. With politicians finally tuning in to the populist anger many American's feel, just about anything can happen - and probably will.