How come the stock market has been tanking ever since Republican insurgent Scott Brown took Teddy Kennedy's Massachusetts U.S. Senate seat Tuesday in the upset of all upsets?

I've been saying for the last nine months, most recently just before Christmas, that the secret behind the historic stock market rally from the March 2009 bottom has been the failure of the Obama administration and the Democratic Congress to ram through their budget-busting anti-growth agenda. So now that Brown has denied the Democrats their filibuster-proof majority in the Senate, and a wave of anti-incumbent sentiment seems to be sweeping the land, why would stocks suddenly go down?

Remember, historically, on average, stocks have done best under divided government -- when the presidency, the Senate and the House are not all controlled by the same party. That's where we seem headed now as we head into the 2010 congressional elections, when the Democrats will certainly lose their commanding majorities -- and in the House, might in fact become the minority party. So with that in prospect, why have stocks gone down?

It's partly an example of that old Wall Street maxim: "Buy on the rumor, sell on the news." The time to have bought stocks was last summer, when there were just the earliest hints that one-party rule in Washington might fall apart.

Now, with Brown's election, it's obvious. So it's time to take profits.

And it's partly because of factors that have nothing to do with politics or policy at all. As I wrote here two weeks ago, consensus earnings expectations have been rising more rapidly than I've ever seen before -- it's off the charts. That's good, but it means the actual numbers reported during earnings season, even if they are very good numbers, still won't be good enough to meet those supercharged expectations.

You can't deny there's some of that going on. Look at Intel (INTC), JP Morgan (JPM), Google (GOOG) -- I could name others, too -- companies that have blown the doors off on earnings this quarter, but whose stocks have fallen dramatically following the announcement. In a nutshell, expectations have gotten a little ahead of reality. After more than a 70% gain in stocks in a little over 300 days, we're long overdue for a correction. I've been saying that for a couple months. I was early.

But now it's coming true.

That said, there is a political side to what's been happening in stocks this week. It does relate to the Brown election in Massachusetts, just not in the way you might first think. Brown didn't win because he was a conservative or a Republican. He won because he opposed the corrupt "machine" politics of a state so deeply controlled for so long by a single party, the Democrats, that it has become corrupt and sclerotic. Brown s campaign was a benign form of populism.

That struck a chord in a national context because the one-party rulers in Washington are seen now by many as having become arrogant and brutal -- willing to pull every dirty trick in the book to get some kind of health-care legislation passed seemingly without caring very much about what the legislation even contains. Even some of those who support health care legislation are getting a little sick at the way the process is being managed. The problem is that, historically, such rage has often been exploited by populists who have usually been violently anti-business -- especially anti-Wall Street. Their agenda is all about taxing, regulating or otherwise redistributing the wealth of the great moneyed interests for the benefit of workers and farmers.

Brown ran on an explicit anti-tax platform, and he has opposed the Obama administration's proposed tax on banks. But unlike Brown, the Republican Party has turned to populism in a big way -- and I fear it is interpreting Brown's victory as validation. It started with TARP. Remember, TARP was passed when George W. Bush was still president, at the urging of his Treasury secretary Henry Paulson. Democrats controlled both houses of Congress then.

They had no choice but to vote for TARP -- even though Democrats are generally populists by nature, unless they voted to bail out Wall Street, they were at risk of doing nothing while the world collapsed around them.

Republicans, on the other hand, who are traditionally not populists at all -- and who are generally much more sympathetic to big business and banking interests -- voted against TARP. It was a diabolically smart thing to do. They knew the Democrats wouldn t dare to not vote for it. So they all voted against it, so that a year later, when the banking system was saved by TARP, they could blame the Democrats for being in the pocket of Wall Street, and putting its interests ahead of Main Street's.

And that's just what they've done. All the loudest squawking about bail outs and bonuses comes from Republicans now, not Democrats. It's mostly Republicans in the Senate -- plus Bernard Sanders, an eccentric independent -- who are opposing Ben Bernanke's confirmation for a second term as Fed chair, because of his role in facilitating the bailouts.

So on Thursday, less than 48 hours since the polls closed in Massachusetts, the White House announced a new plan to regulate banks. It would ban them, basically, from doing much more than making old-fashioned loans -- forcing them to run the kind of businesses they were running a century ago. And the government would have the power to put limits on how big banks could grow.

Do you see a pattern here? Brown is elected, and Obama sees the voters repudiating health-care reform. So he drops that one like a hot brick. In its place, his top new initiative is turning the banking system into a giant regulated public utility. That's something he wanted to do all along -- but now it's top priority, because he sees it as something that the GOP populists will go along with.

So health care is dead -- a victim of partisan disagreement. But now both parties can agree that destroying the U.S. banking industry is Job One. And Obama is more than happy to let them do it, so after a year as president, he can actually claim that he has accomplished something.

Does the GOP really want to destroy the banks? Probably not. But they want to get elected. And right now being a bank-bashing populist seems to be the way to go.

I've been saying for quite a while that bank stocks were a lousy long-term investment. Once the recovery from the crisis of 2008-09 was over, I said banks would have no strategic future. This is one of the reasons why I said that.

So now do you see why stocks have gone down post-Brown? The possibility of destroying the nation's banks will do that.