WHEN PUBLIC SERVICE IS JUST A SCAM

Here is some financial ingenuity in action:

During a decade in Congress, California Representative Grace Napolitano has pocketed more than $200,000 of political contributions by charging as much as 18 percent interest on money she loaned to her own campaign.

The suburban Los Angeles Democrat made the $150,000 loan in 1998, when she was first elected to the U.S. House of Representatives. Through Dec. 31, her campaign committee has used donations to pay Napolitano $221,780 of interest while reducing the principal by just $64,727, a review of her Federal Election Commission filings shows.

As recently as June 2008, Napolitano held a fundraiser asking supporters and political action committees for money to pay down the 1998 debt. Napolitano, her spokesman and her campaign’s lawyers didn’t respond to requests for comment.

“I find this practice quite reprehensible,” said Craig Holman, government affairs lobbyist for Public Citizen, a Washington advocacy group. Interest payments from Napolitano’s campaign treasury have “proven exorbitantly profitable,” he said. “Candidates are not supposed to personally benefit from these campaign funds.”

The Federal Election Commission in 1999 ruled the loan and its 18 percent rate were allowed by U.S. election laws, after a complaint by Napolitano’s 1998 Democratic primary opponent. The commission agreed with Napolitano’s explanation that the interest charges were justified because Napolitano had to pay penalties for taking the money from a retirement account.

How does it work out for her?

“This is unbelievable -- it really is extraordinary,” said Michael Toner, a former Republican member of the FEC who was general counsel for George W. Bush’s 2000 presidential campaign. Toner said he “cannot recall a situation” where a candidate collected interest in sums that “actually exceeded the original loan balance.”

For Napolitano, a 72-year-old grandmother of 14, the campaign IOU has been a profitable asset, far outperforming stocks since the loan started accruing interest in May 1998. Over the same period, an investment in the Standard & Poor’s 500 stocks, with reinvested dividends, would have lost more than 7 percent, according to Bloomberg data.

In the first five months of 2008, Napolitano’s campaign paid her almost $68,000 of interest, according to FEC records. An additional $15,227 of principal was paid last May.

Ed Morrissey says:

Once you have that system established, it allows contributors to stuff money into your pockets as long as the loan remains outstanding. At 18% interest, that could go on for decades, and in Napolitano’s case, she already has one decade on the books. Napolitano has managed to keep more than half of the debt alive as principal while earning almost 150% just on interest payments — and at this rate, she could do this for another twenty years.

The best part of this is what Napolitano converted to create her donor-funded ATM. She worked as a secretary for Ford Motor Company, and cashed out stock at $45 a share in 1998 out of her retirement account. It’s now trading at less than $2 a share, and she’s had a 150% return in ten years without risking the principal at all.

And she’s done it while giving contributors a direct line to her checking accounts — and it’s all legal.

But it still stinks.

It does stink. But I have to ask, if they are so clever at setting up these scams for themselves, why have they got the government's finances in such a mess? Or is that the idea?