McCain’s other controversy of the week

Maybe you consider the Vicki Iseman controversy to be a big deal, or maybe you’re underwhelmed by it and think the NYT shouldn’t have pulled the trigger on it. I guess we’ll be able to say more about it once some of the follow-up reporting adds some details and nails down some of the loose ends.

But either way, let’s not lose sight of John McCain’s other controversy of the week — the senator’s efforts to game the public financing system.

To review briefly: in December, McCain, who’d earlier opted in to the public financing system, needed cash. The FEC had already certified that he was owed $5.8 million in public matching funds — but he wouldn’t be getting that money until March. And he didn’t want to absolutely commit yet to using that system, because it would limit his campaign to spending only $54 million through the end of August. And FEC rules say that using public matching funds as collateral locks a candidate into the system. So McCain struck a deal with the bank: he promised to only commit to using the system if he lost the primary. If he won, he would opt out of the program, and he’d be more than able to pay the bank back, because the funds would come flowing. McCain’s lawyers were evidently very pleased with the canniness of this arrangement.

Federal Election Commission Chairman David Mason isn’t nearly as impressed, and is sharp enough to know a candidate trying to pull a con when he sees one.



This story is a little harder to get than, say, whether McCain had an affair with a lobbyist for whom he was doing favors. But it’s still pretty important.

Hilzoy had a great item on this.

Campaign finance laws ask candidates to make a choice: either you take federal money, in which case you are subject to a number of restrictions, or else you don’t take it, in which case you are not. Getting a loan by using the matching funds you have not yet received as collateral is a way of trying to have it both ways: essentially, you get to spend your matching funds now, but because the money did not literally come from the government, you can delay a decision about whether or not to accept the restrictions that go with them until later. If you can leverage the money into enough wins to generate contributions, you can pay back the loan and duck the restrictions; if not, you’ve lost anyways, so you might as well abide by them. That’s exactly what campaign finance laws do not want candidates to be able to do. McCain tried to be tricky about this: he didn’t use the matching funds he had qualified for as collateral, but he did use the fact that he could qualify for them at any time. That’s why he had to give away his legal right to withdraw from the campaign if he lost: to satisfy his lenders, he had to promise to stay in long enough to actually get the matching funds he qualified for, and to give them first dibs on those funds. Whether or not this violates the law — a law McCain authored — I have no idea, but it is certainly an attempt to wriggle out of its requirements, and it ought to put paid, once and for all, to the idea of McCain as a straight-talking man of principle.

Josh Marshall also summarized what happened quite nicely.

Back in August McCain opted into the public financing system for the primaries. Then in December he needed to come up with some cash quickly. Well, no problem. He was already guaranteed over $5 million from the feds. So all he needed to do was put that guarantee down as collateral for the loan. Only McCain didn’t want to do that because once he formally made the federally-guaranteed money collateral then he gave up his right to later opt back out of the system. But, he really, really needed the money. So McCain, along with his campaign finance lawyer Trevor Potter (whom I’ve met and is a very sharp guy) came up with a workaround. It went like this. McCain wouldn’t make the guarantee collateral. But he promised that if his campaign tanked he would opt out of the system and then opt back in. This would mean remaining a candidate even after he knew he wasn’t really in the race in order to a) get back the public money to pay his creditors and b) assure he could sign the original loan note with the de facto collateral while nonetheless maintaining his ability to once again opt out of the public financing system at any one of many possible future junctures at which his campaign might pop back from life support and it would be in his interest to go back to raising money from donors. Of course, McCain’s campaign did come off the mat. And since he now wants to raise and spend as much as possible before the end of the summer, earlier this month he did actually opt back out. The FEC, the outfit that enforces the campaign finance laws, says McCain’s not allowed to opt out. But whatever, he opted out anyway.

Why McCain feels justified going after Obama over his commitment to the public financing system is a mystery.

What happens next in this story? The FEC’s Mason — who’s a Republican, by the way — has told McCain he can’t drop out of the primary election’s public financing system. McCain’s lawyers have effectively told Mason, “Watch us.” And because of a dispute between Bush and Congress, the FEC only has two members right now, two fewer than is necessary to take any actions at all.