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Friday, February 22, 2008

The Mark Of McCain-Feingold

I'm shattered, I tell you! It seems McCain is having a little problemo with campaign financing rules. Seems he promised a bank that he would use public election dollars if need be to pay back a campaign loan, which may be a problem now that he wants to opt out of the primary spending limits after having earlier applied for public financing.

Oh, the injustice! O the horror! Somebody, call the Supreme Court! Oh, the tragedy! It would seem that Mr. McCain_Bipartisan_Feingold, who does not want the little pukes to be able to mention a S_n_t_r's name in vain during the campaign season might be gored by an ox of his own feeding called the FEC.

Speechnow.org should be extremely cheerful at the moment. That is a link to the cached version, since it seems their actual website just vanished.

PS: If you were to put in writing to a bank that you would pay back a loan, if necessary, with your 401K funds or IRA funds and the bank granted the loan using that promise as collateral, under federal law you'd have to pay taxes on the amount used as collateral. It would be treated as a withdrawal. The same principle should hold for McCain. He did use his ability to get the money as collateral according to the article. And since the article is in WaPo it may even be accurate. Forget this "technically" clear bit:
It involves a $1 million loan McCain obtained from a Bethesda bank in January. The bank was worried about his ability to repay the loan if he exited the federal financing program and started to lose in the primary race. McCain promised the bank that, if that happened, he would reapply for matching money and offer those as collateral for the loan. While McCain's aides have argued that the campaign was careful to make sure that they technically complied with the rules, Mason indicated that the question needs further FEC review.
Uh-uh. He's trying to have this both ways. He used his ability to get the funds as collateral to get a loan so that he didn't have to draw funds, if this is true. Not only that, but according to the article McCain only tried to cancel out his application for federal funds as of February 6th, and the bank loan was in January. Needless to say, McCain's request has not yet been granted by the FEC, which, it now appears, IS SUDDENLY A VIOLATION OF HIS CONSTITUTIONAL RIGHTS:
Trevor Potter, a former FEC chairman who is McCain's top lawyer, immediately disputed the assertions in Mason's letter, saying McCain has a constitutional right to exit the federal program.
Which leaves our fearless leader with about 5 million to spend for all the rest of the primary season. I think I will be sending ole Huck some money tomorrow.

This, folks, is hubris. Those whom the gods wish to destroy, they first make mad. If McCain ignores this law he's in deep, deep shit, and the Republican party better be finding themselves another candidate like yesterday. He didn't have to apply in the first place. He didn't have to promise the bank that he would get matching funds if necessary. Once he did, he can't pretend he didn't.

By the way, the NY Sun editorial outlines the SpeechNow case:
The group differs from other so-called 527 nonprofits. It refuses to take donations from corporations or labor, meaning it only solicits from individuals. Its aim is to let voters know where the various candidates stand on free speech issues, including campaign finance regulation. It would purchase advertising and endorse or criticize candidates based on their voting record on free speech.
By discouraging people from forming groups the FEC discourages civil society through regulation. A wealthy individual, such as William Gates, would be free to spend $1 billion purchasing airtime to devote attention to just about any issue or candidate he so wished. But 1,000 individuals of modest incomes could be prohibited from organizing into a committee and spending $20,000 a piece to purchase equal airtime to disagree with whatever issue so concerned Mr. Gates. The geniuses in Congress have made free speech into something you must register for at the FEC.
Yup. And now I've got to hear McCain's lawyer talking about his constitutional rights?

Wow. So if McCain-Feingold made him a traitor before, is he now a patriotic rebel?

Do the money laundering and know your customer laws say anything about these sorts of shenanigans?
He's not a traitor to the nation. As far as I am concerned, he's one of the few who deserves to lie in state when he dies.

I have tried to explain my POV on McCain before. He's not an ardent supporter of the constitution. I do not favor giving power to patriots who do not support the constitution. I believe his patriotism is genuine and that he just doesn't understand this piece of what makes the country what it is. He's a lot like John Adams in that respect.

Can you rebel against your own laws? It seems to me that the essence of democracy is that the laws must impact every person equally.

It's not a matter of money laundering or KYC. These are FEC rules. The rules on tax-deferred retirement accounts are ERISA, and it is a question which comes up from time to time because unfortunately a lot of people don't realize the results of using funds in such an account as loan collateral. It's a total nightmare to have some LO grant a loan not realizing that they are exposing a customer to a big tax bill. See the example toward the end of this.

As in the case described above, in which the widow cosigned on her son's loan, simply pledging the accounts as potential security is considered a withdrawal. I think this interpretation of collateral is what is likely to hold for SEC purposes, since the question has been adjudicated before. If the bank did indeed extract a promise that McCain would use the matching funds to repay their loan if it were necessary, that fits the definition of collateral.
Very few of our senators or congresscritters have any familiarity with the constitution,and Mccain's hubris is not surprising either.Heck the Prez is no longer bound by the laws that apply to Mortals (signing statements,etc) and MCc is just being a litle premature,or is that immature?
I'll go for both!
This story is wayyy more interesting than the NYT smear piece. If I were McCain's opponents in the race (this means you Huckabee and Ron Paul) I'd probably incorporate this into my stump speech:

How can the man who wrote the law not be held accountable to the law!

Or it's your law, follow it!

Aww, I've got nothing.
Certainly McCain would make a magnificent Caesar. His willingness to fight for his people is beyond doubt, and he seems to have a real distaste for intrigue. He would likely pick competent proconsuls, unlike the walking disaster Bush sent to Iraq.

But does that make him loyal? For me, the heart of the American philosophy is that we keep our political interests out in the open. We put our churches and Klansmen and animal rights activists and everybody else in parades so folks will see plainly what they look like and how they act. The McCain-Feingold Act drives that underground. It teaches free men to either act from the shadows or give up, it quenches solidarity and shared interests among people who work together. I believe these predictable results are corrosive to civil society, and therefore profoundly disloyal.

I don't think retirement accounts are a good analogy. In the situation you describe, the retirement assets are owned outright, and therefore the owner has the capacity to grant a security interest. However, federal election money is a discretionary future donation to be used for particular purposes. Can it be garnished, or a security interest granted?

The particularity of purpose is what made me think of money laundering. How far back does the debt have to go before the money is being improperly diverted? When the FEC agreed to finance the campaign? The beginning of the campaign? The previous senatorial campaign that was necessary as a stepping stone to the presidency? The house he lived in while campaigning for the Senate? McCain would have a hard time drawing that line in court, given his reputation for throwing people to the wolves for crossing that line.
Daniel, your comments about Caesar and the effects of McCain-Feingold are beautifully expressed. You have summed up my concerns better than I ever did.

Actually, retirement accounts are protected funds that cannot be accessed for repayment of debt under ordinary circumstances. Thus, for example, an individual with a non-recourse mortgage who walks with 1.6 million in his IRA/401K need not fear a court-ordered judgment taking those assets.

That is why I believe that they are a good parallel. If you pledge them, the IRS designates that as a prohibited transaction with the result that the tax treatment is as if you had withdrawn the funds.

The SEC appeared to be making a similar rule for exactly the same purposes. By pledging matching funds, the SEC considers that you have constructively drawn on them. If McCain did pledge the funds as security, then he is considered to have withdrawn the funds and is thus not eligible to withdraw from public financing for the primary election cycle.

If the SEC rule is not followed, obviously it would be common for candidates to promise the funds to get outside financing, use that financing to raise additional funding, and then withdraw from the system when and if it became expedient.
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