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McCain Campaign Banked on Taxpayer-Funded Bailout

As The Washington Post reported on Saturday, John McCain's campaign struck a canny deal with a bank in December. If his campaign tanked, public funds would be there to bail him out. But if he emerged as the nominee, there'd be no need for public financing, since the contributions would come flowing.

It's an arrangement that no one has ever tried before. And it appears that McCain, who has built his reputation on campaign finance reform, was gaming the system. Or as a campaign finance expert who preferred to remain anonymous told me, referring to the prominent role that lobbyists have as advisers to his campaign, "This places McCain’s grandstanding on public financing in a new light. True reformers believe public financing is a way to replace the lobbyists’ influence, not a slush fund that the lobbyists use to pay off campaign debts."

Here's the back story. As of December, McCain was still enrolled in the public financing system, but had yet to actually receive any public matching funds. The Federal Election Commission had certified that the campaign would be receiving $5.8 million in public funds. But they wouldn't get that money for a couple more months. In need of even more cash beyond the $3 million loan he'd already secured from a Maryland bank (he'd taken out a life insurance policy as collateral), the McCain campaign was stuck in a bind. They needed more money, but the bank needed collateral.

The promise of those public matching funds (to the tune of more than $5 million) was the only collateral the campaign could offer. But there was a problem with that. Using that promised money as collateral would have bound McCain to the public financing system, according to FEC rules. And the McCain camp wanted to avoid that, because the system limits campaigns to spending $54 million in the primary (through August). That would mean McCain would get seriously outspent by the Democratic nominee through the summer. (McCain has separately pledged to enroll in the system for the general election; that would give him $85 million in taxpayer funds for use after the party convention through Election Day but bar other contributions.)

So here's what the McCain campaign did. They struck a deal with the bank that simultaneously allowed his campaign to secure public funds if necessary, but did not compel his campaign to stay in the public system if fundraising went well (i.e. if he won the nomination). As McCain's lawyer told the Post, "We very carefully did not do that."

He was not promising to remain in the system -- he was promising to drop out of the system, and then opt back in if things went poorly. In that event, the $5.8 million would still be waiting for him. And he'd just hang around to collect it, even if he'd gotten drubbed in New Hampshire and the following states.

You can see the agreement here. The relevant paragraph is on page two. Sizing it up, Mark Schmitt writes at Tapped:

What we know is that McCain found a way to use the public funds as an insurance policy: If he did poorly, he would use public funds to pay off his loans. If he did well, he would have the advantage of unlimited spending.

There's a reason no one's ever done anything like this. It makes a travesty of the choice inherent in voluntary public financing, between public funds and unlimited spending.


24 Comments

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And we should be surprised about this why?

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The DNC should make a commercial out of this, pronto...

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It's ironic that it was McCain’s authenticity that lead him to victory over Romney. It should be easy to show how much "The Maverick" twists and turns in the wind when faced with political pressure or inconvenient circumstance.

First I thought that McCain brought up the "pledge" to influence the democratic primary since Hillary Clinton does seem to be a better opponent for him in the presidential election than Barack Obama.

Not sure about when he had to disclose the information about the loan to the FEC, but now it seems more likely to me that he brought the "pledge" up to deflect any criticism about how he got the loan.

McCain hasn't even technically won the Republican nomination yet, and already he is abusing the system .

Is there no end with these criminals?

So the bank gave Honest John an UNSECURED loan for millions, even though (wink, wink), it really WAS secured.

I guess the Right-Wingers have had McCain all wrong.
He's as dirty as all of their other heros.

Haha, and her has the audacity to go after Obama, he doesn't care about campaign finance, he just wants Obama to disadvantage himself because Obama will overwhelm McCain in fundraising. I'm soooo glad Hillary jumped on the McCain bandwagon, attacking Obama on the same issue. What a Republican.

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Can you really blame McCain?? I mean, he was dead in the water otherwise.

I'm no McCain supporter (I've logged MANY volunteer hours for Obama), but nothing any politician does surprises me anymore.

The Dems can and should make as much hay of this as possible (all's fair in love, war, and politics), but personally -- McCain's maneuver doesn't surprise me one bit. And it bothers me less than a LOT of other things he's done -- propping up Bush these past several years, for instance, especially on Iraq.

The Washington Post editorial over the weekend falsely attacked Obama on this pseudo-controversy and parroted McCain's talking points. See http://roadkillrefugee.wordpress.com/2008/02/16/washington-post-editorial-falsely-attacks-obama-on-public-financing/

It's good to see McCain's hypocrisy come to light. Now only if the MSM could get over its Saint McCain obsession. He is the same guy who was among the Keating Five, after all.

So did Hillary step in a pile of doodoo by seeming to elevate McCain as a paragon of (funding) virtue over Obama? If so it is her fault for jumping into this dust up between Mac and Obama, which was none of her business to begin with.

On top of this, Schmitt says Obama's response was exactly correct:

"Obama's precise statement was, and has always been, "If I am the Democratic nominee, I will aggressively pursue an agreement with the Republican nominee to preserve a publicly financed general election." That's an artful statement, and it's not artful in a "meaning of 'is'" sense -- it's exactly the right answer. A commitment to "preserve a publicly financed election" would have to mean much more than whether both participate in the system. It would require some significant agreement about how to handle outside money, 527s, "Swift Boat"-type attack groups, party money, etc., and other factors that have undermined the last two publicly financed elections, from both sides. It is hardly an evasion to describe this as an agreement to be negotiated, rather than a simple pledge."

The dreaded feeling I have about this though, is that if the Post has already demonstrated colossal ignorance and lack of insight into this, will the networks and print media even begin to penetrate into the arcana of this deal? I mean will the Times even have the courage to approach it? Kristof has already canonized McCain. Or will it just get sucked into a black hole? I mean it boggles the mind. McCain must have some pretty clever lawyers, the bastards.

McCain is and has been a phony on every issue of significance except for his unrelenting advocacy (Bosnia excepted) for mass murder and more war as a way of demonstrating honor and principles.

McCain was gaming campaign finance from the beginning even in the wording of the legislationl.

Though difficult with such a highly controlled media, it seems the way for democrats to call back tempted independents and democratic crossovers would be to repeatedly expose McCain’s supposed strengths, for the counterfeits they are. The most important myth to expose is his pretense of principled character and willingness to put himself at risk to uphold principles. Both of these are media creations.

McCain hasn't been a maverick since he almost flunked out of the US Naval Academy squeaking by in the bottom 5 of his large class.

Throughout his life he has shown profound weakness of character. He has a pattern of revealing that he knows what the principled, honorable, or ethical position or path to take is, only to do the opposite as his consistently weak character gives way to corruption, calculation and expediency.

After seeing over 130 shipmates burn to death from napalm and high explosives. He said it opened his eyes to the horrific suffering of napalm and that he didn't think he could any longer bomb the civilian areas of North Viet Nam. But within 3 weeks a few brave North Vietnamese saved his life of the vengeful crowd that had seen the mass murder of hundreds of thousands from his bombs and others. That flip against what he recognized as right is his life-long pattern.

Last year he allowed amendments to his anti-torture bill which reversed the effect of the legislation so as to allow its use, ban any civil suits for its use and thus any ability to expose it, allow torture coerced statements and confessions in kangaroo trials, provide de facto impunity for using torture including allowing the use of reliance on (bogus criminal) legal opinions allowing it as a defense. He said not one word, allowed it to be portrayed as a successful thankless campaign against torture, and did not expose that the bill had become the torturers dream.

Though his imaginary positive character traits like GW’s are media creations, the difference seems to be that McCain often knows what is right before he betrays the principle.

McCain has flipped on almost every issue of substance in order to cynically pander to the worst elements of the political sphere. (This list includes but is not limited to campaign finance, torture, taxes, domestic surveillance, immigration and much more.) On the 3 trillion dollar disaster in mass murder adventurism however his has not wavered. Escalate any war the U.S. is in and wage as many wars against the weak as possible.

A man of principles to which he adheres regardless of consequence, he is not.
A man of honor, he is not.
A rogue bucking the system he is not.
A phony who with the media cultivates his false image is what he remains.

JK

what you said sounds about right

In hindsight, this was a stupid mistake by McCain. Sure, if McCain hadn't this or something else, he may have run out of funds. But in an election year that any Republican walks into with one hand tied behind their back, this ties McCain's other hand back there too.

This will give Obama all the justification he needs to refuse a public finance deal with McCain.

The Obama campaign only needs to say something like: "The McCain campaign has already violated the public finance rules. We're not going to be suckered into playing by rules that the other side is already breaking. And with Bush's gutting of the FEC, there is No oversight and No enforcement in place to stop McCain from continued cheating."

Boom, issue over. Better yet, scandal moved into McCain's camp.

If Bush were really smart, he'd quickly appoint FEC commissioners that would be acceptable to the Democrats. But Bush is a lot more stubborn than he is smart. Six months ago Bush could have backed down off his crazy wingnut FEC appointments and put forward some normal wingnuts. But I think Bush has waited too long. I think the only appointees that would past our Democrats now would be "Boyscout" or Patrick Fitzgerald" type Republicans.

Swallowing his pride and appointing wingnuts is one thing, but taking the double-swallow and appointing non-partisans is probably too much of a concession for Bush. And if it hurts McCain, so what. I don't think Bush has ever given a crap about McCain. Certainly not enough of a crap to let the Democrats win this tiny battle.

Back in 2000 , here in Travis County Texas ,when were organizing for McCain the insurgent we would have argued that our straight talking candidate would never have stooped to this type of chicanery.
This is a total betrayal of the 2000 ideals -McCain is just another pol , very very sad & SHAMEFUL ...I cry for my Country , where have all our honest statesman gone ...

I disagree with M Stevens... this debacle can hardly be characterized as a stupid mistake. I appears to be clearly an well-calulcated attempt to have one's proverbial cake and eat it too. McCain wants to use matching funds, not as a way to cleanse the campaign system of dirty special moneyed influence, but as collateral for a loan to keep out of the public finance system. A more cynical maneuver from the supposed king of political reform I have yet to see. It is even more galling that McCain is publicly demanding Obama to jump on board public financing, as if Obama had bona fides to prove on this score. Any attempt to position McCain as a "reformer" or "maverick" has got to be seen as sheer political flim-flam.

No, it was a stupid mistake. Crafty, interesting, unique, but also shifty, underhanded, stupid and unnecessary.

Stupid because if McCain not made this clear violation of the public finance laws, he'd have had a much better chance of holding Obama's feet to the fire on public financing in the general. But now, with McCain already cheating the public finance laws, McCain loses all credibility on the issue. Obama can easily side-step the "pledge" by refusing to make deals with a cheater.

Because of this singlular mistake by McCain, Obama will probably be able to raise at least twice as much money as McCain in the general. Maybe more.

McCain should have found some other way to guarantee his loans Hint, McCain's wife is super rich... Any way you cut it, doing something that allows your opponent to out-raise you 2 to 1 is a BIG mistake.

Once again a Republican promises tax payer dollars to the banks if they will give him money. Sadly, this is not at all that surprising other than it was not better hidden from public scrutiny. John "Keating 5" McCain strikes again!

Dusty: That about sums it up ...

So when can I barrow money against public funds to finance my personal interest?

This just goes to show the true alliance that McBush has made with the other bedfellows in Washington and throughout the nation. As they go on the campaign they will pledge that the only offices of government that benefit the people are the Department of defense(which can gather intelligence and strong arm enemies at their behest) and the military(which can impose itself on any region thus creating an opportunity for business investment and semi-permanent treatise that favor their backers). All the while decrying regulation and taxes which they believe cut against their bases bottom line. This creates the highly favorable situation where they can strengthen their party financially/privately away from government eyes while at the same time not taking the hit on government failures by blaming the system as it was set up. This last part backs up the theory that Bush ignores those laws that get in his way by re-interpreting them to minimize damage or consolidating their authority in the process.

It just amazes me that the Republican mantra still has teeth in the working class in middle and the South parts of this country. From the 80's onward the working class has seen this country shift and ships many of its previously respectably high paying blue collar jobs over-seas without directly ensuring that this workforce had something to turn to. I am oversimplifying the affects but other than 2nd amendment issues and Tax issue what benefit has the Republican Party brought to working class Americans in the middle and south?

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I would love to hear McCain (or anyone else out there for that matter) try to explain this public financing loan repayment thing by finishing this sentence, "My friends, let me give you some straight talk...." Good luck with that one. McCain has opened the door to the precise line of attack that will destroy him in the general election. His only chance was to position himself as the "straight talker" and "maverick", using his supposed experience (vs. Obama) and integrity (vs. Clinton) as a sledgehammer against the Democratic nominee. With this shameless attempt to game the public financing system, McCain shows us his true colors. Sadly, I posted almost the same thought last week when I learned about his vote on the use of waterboarding. No straight talk here, only politics.

I saw Time Magazine's article on McCain's inner circle.

Steve Schmidt, former Dick Cheney communications guy is McCain's communications advisor.

There's no question that Schmidt is linked to Jeff Gannon's comings and goings from the White House way-back-when.

Any chance he'll be called out on this?

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So did McCain get an opinion from the OLC that this transparent dodge was within the law? Or maybe the same folks who vetted Enron's deals. Any decent jurist would have no trouble looking at the ultimate effect of the language and declaring the the matching funds had been pledged as collateral.

Heck, the whole point of collateral is to pay up if money isn't available from other sources. Good luck telling a second-mortgage broker that your house isn't already pledged as collateral for a mortgage because the first-mortgage bank can only seize it if you don't pay off the mortgage with other funds.

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Noticed this before and really, this needs to get out there BIG. This is akin to the Fed bailing out the private banks with taxpayers' money - privatize profits, socialize loss.

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