Posted by Brad @ 2:49 pm on February 28th 2008

McCain Trying To Square the Public Financing Circle

I’ve been off and on keeping up on the story I originally wrote about here, in which McCain, trying to have his cake and eat it to (along with trying to both opt in to public financing but not opt into it, along with breaking the spirit and probably the letter of the law), used the money he would receive from opting in to public financing as collateral by which to receive a private loan—a loan he promised to repay, if he couldn’t win, by opting into public financing as he was going down and sending that money straight to his bank.

Of course it happened that the money that public financing secured him—i.e. the loan—kept him afloat just long enough to win the nomination, at which point, of course, any nominee in their right mind would run screaming from artificially capping their fundraising (and thus campaigning) potential. In McCain’s case, he is using a system designed to get private money out of politics as a means to secure private money, and now that that’s working, he wants to kick off the public financing scaffolding.

For good reason, of course. Public financing would cap his campaign spending at $54 million prior to the GOP convention in September. McCain had spent $49 million as of January 31, and almost certainly has already burned through the other 5 million since. Meaning, if he can’t opt out of public financing, John McCain is effectively broke—his campaign suspended and gone dark—until September.

The Washington Post explains the current legal wrangling going on by McCain’s peeps:

McCain lawyer Trevor] Potter said the campaign offered as collateral its assets, including McCain’s massive fundraising lists and his willingness to keep raising from them. But that may not satisfy the FEC, which requires that politicians borrow using only terms that assure repayment.

“If the bank is saying they lent him money on the basis of future receipts, well, in presidential campaigns, their future receipts can be zero or millions,” said Marc Elias, an election lawyer who arranged a loan in 2003 for the presidential bid of Sen. John F. Kerry (D-Mass.). “The idea that this would be a dependable source of collateral is preposterous.”

Noam Scheiber at TNR concurs:

Agreed. Losing presidential campaigns–the scenario that would have brought the collateral into play–aren’t exactly known for their fundraising potential. In fact, there’s a bit of a catch-22 here: If McCain’s fundraising lists were worth something, he wouldn’t have needed a loan. (At least not a big one.) And if they weren’t worth anything, he’d have needed the loan, but the lists wouldn’t have worked as collateral. I’m not sure how you square that circle.

Bottom line: Either McCain used the promise of public campaign funds as collateral for his loan, in which case he’s locked himself into the public campaign finance system (and its strict spending limits) and is massively screwed until September. Or he didn’t use potential public funds as collateral, which means he didn’t have anything to offer as collateral, which means he received an improper loan. Neither one of those scenarios is very good for the Straight Talk Express.

What’s sort of sad about this scenario is if it weren’t John McCain, Republican Presidential Nominee, that this boondoggle centers around, there would be almost no chance he’d manage to wrangle his way out of it. Because the law is not very unclear here, and McCain’s maneuver violates it. Simply put, if McCain’s tack is legal, then the law here has no meaning. There becomes no reason whatever for the public financing system to not be used as collateral but absent its restrictions for every single candidate in every single race from here on out, as Step One of their fundraising (Step One: go to bank, secure loan for the amount of public financing. Step Two, with the twice-removed public financing money in the coffers, begin raising private money. Step Three, either opt into public financing at a later date if campaign doesn’t take off, retiring all campaign debts with it, or push the system aside and keep going on private money (i.e. with no public financing restrictions)). Our public financing system becomes essentially a not-very-elaborate Ponzi scheme, with the taxpayers who contribute to public financing being the ones who are getting fleeced so they can finance very NON publicly financed campaigns.

The only reason McCain MIGHT get out of it is, at this point, is that approximately half of the nation’s most powerful politicians suddenly have a huge political investment in McCain getting out of it.

Rojas, for his part, seems to find the more distasteful maneuver in this sphere to belong to Obama, for his doubletalk “pledge” on opting into public financing if McCain is the nominee. I agree with Rojas that this represents a pretty Clintonian parsing on Obama’s part—and certainly we would like EITHER nominee to move closer to us on the issue of campaign finance reform and the ridiculous canard political speech has been made into under the guise, tutelage, and leadership of…John McCain. But at most, Obama’s problem is a matter of campaign rhetoric, not being willing to put his money where his mouth is. I find it much more significant when John “Campaign Finance Reform” McCain is essentially trying to game the system and, when called on it, essentially de-legalize a campaign finance reform system when it suddenly runs afoul of his interests. Obama’s issue is a rhetorical one. McCain’s is legal and institutional. Obama’s breach is ethereal—McCain’s concrete. And Obama, or any American politician alive for that matter, hasn’t sunk anywhere near the amount of moral capital into the issue of “keeping our campaign finance systems clean, transparent, and fair” as Senator John McCain.

And like I (and TNR) said, I have no idea how one squares that circle.

To be clear, I have no particular investment in the public financing system or the rules contained therein. For my money, the best way to clean up campaign finance is to throw it wide open. But I do care about the rule of law, and I do get angry when politicians decide it doesn’t apply to them, particularly when said politician not only uses breaking the law to garner themselves unfair advantage over their less unscrupulous opponents, but when they use the law itself to garner themselves votes and moral capital immediately prior to immediately proving themselves among the worst offenders of it.


  1. I am not sure that the promise to stay in and apply for public funding is actually collateral, strictly speaking, so I’m not as convinced as you are that the legal situation is so unambiguous. However, McCain is certainly screwed if that’s the side the FEC come down on.

    I don’t see how using public financing like that is entirely wrong, because the public financing system is supposed to be a failsafe for people that can’t raise the money but once you take it, you obey the rules. McCain didn’t take it, he bargained that he would take it. He didn’t actually own the thing so I am not sure that it’s actually collateral, but that’s something that the FEC are going to be able to judge easily enough.

    If the FEC decide against McCain, he won’t have broken any laws, he’ll just have misinterpreted one and ended up paying the price. If they decide for him, he won’t have broken any laws but rather correctly intepreted one in a way that some people find surprising.

    The issue of whether or not he is breaking the spirit of the campaign finance reform is a different (and possibly politically painful) one and it depends on your interpretation of McCain’s frequent high-faluting rhetoric about “Campaign Finance Reform” and also your views on what a politician wishing to win the nomination, even one concerned about issues of financing for political campaigns, should feel able to do to win.

    Comment by Adam — 2/28/2008 @ 3:04 pm

  2. Indeed. The “legal” and “institutional” framework upon which Brad is insisting would seem to suggest that the binding standard here is the FEC’s ruling, not Noam Schrieber’s opinion.

    The bottom line, as we can all agree, is that both Obama and McCain are dead wrong on campaign finance–and their mutual unwillingness to live by the rules that they’d set for others proves the point.

    Comment by Rojas — 2/28/2008 @ 3:07 pm

  3. I don’t see carte blanche equivocation here at all. Obama made a mealy-mouthed campaign pledge that he walked back from. John McCain is in the process of legally sidestepping regulations the spirit of which he has spent the entire second half of his political career advocating and legislating. Neither are PLUSES, certainly, but there’s a pretty big difference, to me, in terms of degree. Put it this way, Obama’s foul would be akin to McCain’s if he HAD signed a legally binding pledge, campaigned hard on it, and then when it became disadvantageous, sicked his lawyers on it to free him from it.

    I donít see how using public financing like that is entirely wrong, because the public financing system is supposed to be a failsafe for people that canít raise the money but once you take it, you obey the rules. McCain didnít take it, he bargained that he would take it. He didnít actually own the thing so I am not sure that itís actually collaterol, but thatís something that the FEC are going to be able to judge easily enough.

    It’s like using a mortgage on a house you don’t own to secure a loan. Either the house is yours or it isn’t. If the house isn’t yours, then you gamed the mortgage and got a loan with no collateral, which would be an improper loan. If the house IS yours, and, say, the roof collapsed on the renters or property taxes rose, you’d be liable. McCain’s legal argument basically amounts to the public financing system as a kind of campaign finance SchrŲdinger’s cat.

    Like I said, if this IS legal, than the public financing system has just become a system of collateral for every candidate in the future to secure private loans on Day One of the campaign and either never have to pay the loans back, or pay them back with public financing. At which point, the entire legal framework of the public financing system doesn’t make a lick of sense, in spirit OR in letter.

    Now, you me and Rojas may find something to recommend in that situation (certainly, I wouldn’t bemoan it), but it’s still pretty slimy, particularly if you’re as out-front on UNSLIMY campaign finance as John McCain is.

    Comment by Brad — 2/28/2008 @ 3:42 pm

  4. Itís like using a mortgage on a house you donít own to secure a loan. Either the house is yours or it isnít. If the house isnít yours, then you gamed the mortgage and got a loan with no collateral, which would be an improper loan. If the house IS yours, and, say, the roof collapsed on the renters or property taxes rose, youíd be liable.

    No it’s not like that, because the loan contract clearly specifies actions McCain promises to take, actions that will secure money. If Michael Jackson takes out a loan with the promise that if he can’t repay it from cash he’ll pose nude for the Sports Illustrated Weirdo Edition, there’s no collateral, even though there will be money given for the photoshoot (shudder).

    Comment by Adam — 2/28/2008 @ 3:57 pm

  5. Collateral is a fixed asset against which you secure a loan.

    To use public financing as a fixed asset, you implicitly (if not explicitly, though probably that to) opt into the system. If that is an asset for your campaign, than you are a publicly financed candidate, and all restrictions apply.

    If agreeing to pose nude for the Sports Illustrated Weirdo Edition, for instance, meant that it could be used against Jackson in a custody battle, than by agreeing that he will in the event of non-payment of loan, it immediately becomes a viable custody issue. Saying “well, I WOULDN’T if I could repay my loan!” wouldn’t really fly in court. It’s the AGREEMENT TO that is at issue. McCain says “agreement to” doesn’t count as “agreement”. The bank, and the FEC, seem to have different ideas.

    If you never made that agreement in the first place, than no problem. But at that point, you posted collateral for a loan which was not, in fact, an asset of yours, making it an improper loan and possibly fraud. Clearly, that doesn’t fly in McCain’s case.

    Comment by Brad — 2/28/2008 @ 4:06 pm

  6. I know what collateral is. My point is that I don’t necessarily think that the promise to take the public financing on offer comprises collateral, nor would Sports Illustrated’s promised money in the event of our hypothetical MJ photoshoot. The asset belongs to someone else and is only available if certain actions are performed; the performance of those actions is what the loan contract specifies (because they’ll bring in the money) so I am just not sure that the promise to perform the action as an action of last resort makes the promised renumeration collateral; my point is that it seems to me, logically, that he didn’t opt into the system but promised that he would, if he had to (of course, all the candidates presumably feel that way; the difference is that he made a legally binding commitment to do it, which you say means that he has, in fact, opted in just by promising that he would if he had to). However, this is exactly the sort of stuff that courts are to decide and if I’m wrong, I’m unlikely to argue as there is presumably a bunch of applicable case law in addition to the law in question.

    Incidentally, I don’t think that this or the Obama thing are of enormous importance, although voters should be aware of both (and those that rate McCain highly because of believing that he’d keep private money out of the campaign, or rate Obama highly because he keeps his word, should be very interested in them). What’s important for McCain is what the FEC decides, which may sink him and if that happens, he has no one to blame because he knew the rules (helped write them, in fact).

    Comment by Adam — 2/28/2008 @ 4:58 pm

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