California Congresswoman discovers get-rich-quick scheme

People who wonder how elected officials come to Congress on modest means and retire wealthy should study Rep. Grace Napolitano of California.  Few have found campaigning as personally enriching as Napolitano … literally.  And according to the FEC, her scheme is apparently completely legal:

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.

Here’s how it’s done:

  1. Withdraw money from a pension or tax-protected savings account to justify charging yourself an interest rate that would make most credit-card companies blush.
  2. Pay only the interest as long as possible on the loan.
  3. Hold fundraisers specifically to retire the debt you owe to yourself, and make sure donors understand exactly where that money goes.
  4. Give yourself all the donations from those fundraisers.

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.

Update: I didn’t play Name That Party, and thankfully neither did Bloomberg.  It’s in the second paragraph of the news story: she’s a Democrat.