(Bloomberg Opinion) -- Stock market losses and volatility, particularly in financial stocks, have people worried about, well, everything.
This recent selloff is historic in scale but strange because so far, it's hard to identify a specific culprit behind it. The jitters could be chalked up to the hawkishness of the Federal Reserve, the flattening of the yield curve, trade wars, the relationship between the U.S. and China, projections for slower economic growth in 2019, financial market liquidity issues near year-end … or President Donald Trump. He is certainly at the center of investors' crisis of confidence this time, as the financial system was during the slump of 2008.
The best way to think about this confidence juxtaposition might be Treasury Secretary Steven Mnuchin tweeting Sunday afternoon that he had calls with the CEOs of Wall Street banks to make sure they had enough liquidity in light of recent market conditions. This was bizarre for a couple of reasons. First, with memories of the financial crisis still relatively fresh in the minds of market participants, nothing spooks investors more than a high-ranking official saying there's nothing to worry about in the financial system. Second, the banking system has dramatically reformed over the past decade. The Federal Reserve now puts out an annual report in June called the Comprehensive Capital Analysis and Review, which dictates the extent to which banks return capital to shareholders. This isn't like 2007, when regulators were fumbling in the dark about the risk exposure and stability of the nation's largest banks.
It would have made more sense for the bank CEOs to be calling the White House to check in on the state of affairs there.
The next triggering event like the collapse of Lehman Brothers is not likely to look like the collapse of Lehman Brothers. It might well be the ouster of Trump, as key bulwarks remove their support of the administration and others start to step back – a spiraling crisis of confidence like a run on a bank.
What has prevented such a spiral so far? The one area in which Trump has maintained relatively decent approval ratings: the economy. That public support has kept his own party strongly in his corner.
But cracks have been forming. The struggles of the administration to replace Trump's chief of staff, attorney general and secretary of defense show that party luminaries are increasingly reluctant to tie their fortunes to the White House. January will be a key test to see whether Democrats taking control of the House of Representatives, plus the impact of the stock market slump, do further damage to the administration.
Here's the scenario that should keep the White House up at night: First the stock market fails to recover, which negatively impacts the public's view of how Trump is handling the economy. Trump's approval among Republicans drops, especially plausible as they may be more sensitive to the stock market than the public at large is.
Then the conversation in the media starts to shift. Already, in response to the stock market drop, New York Times columnist Thomas Friedman says Republicans need to consider removing Trump from office. Next, retired Republican officials start to say the same. So do the Republican members of Congress who face competitive elections in 2020. The conservative media starts to come aboard, saying that Trump will be a drag on the party's fortunes in 2020 and threaten a whole host of conservative priorities, from tax cuts to immigration restrictions to reshaping the judiciary to redistricting in the 2020s. Eventually, Republicans in the Senate join their Democratic colleagues in voting to impeach.
This may sound implausible when so much of the past two years has been defined by Trump's base sticking with him, with expressions like "fake news" and "nothing matters" coming to define an era of entrenched partisanship. But the Democratic takeover of the House, the stock market crash, a new level of turmoil in the White House, and the dawn of a new presidential election cycle might spell the end of Trump's immunity. Something will matter.