Credit Constraints and Political Corruption

Virginia Governor Bob McDonnell

Photo by Gage Skidmore

Virginia Governor Bob McDonnell has gone from GOP rising star to national embarrassment in a flash as it’s become increasingly clear that both he and his wife have been accepted large cash payments from Jonnie Williams, the CEO of Starr Scientific and also a campaign donor. Alexander Burns write for Politico that “The question everyone’s raising now is: How on earth did McDonnell let this happen?”

I myself had the same question. If you want to know why a member of congress is taking bribes, it’s usually pretty simple—he wanted money.

But Virginia rather idiosyncratically limits its governors to a single four-year term* so it really seems like there would be no need for McDonnell to accept bribes while in office. If Williams wants to give McDonnell hundreds of thousands of dollars (either out of the goodness of his heart or in exchange for favors) all he has to do is wait for McDonnall to be out of office in 2014 and then he can pay him whatever he wants for a consulting gig or as a speaking fee or whatever. There’s so much basically corrupt behavior out there that’s fully legal that it seems absurd for a high profile politician to stoop to breaking the law.

The answer seems to involve credit constraints. In Burns’ words, McDonnell “overextended himself in the housing market prior to the 2008 crash” which would have created a problem. After all, if you need money in 2013 but won’t be able to earn the money legally until 2014 normally what you want to do is get a loan. And back in the good old days of NINJA loans it’d be easy. You could borrow way more money than your income would allow, and then easily repay it next year when your income soars when you’re out of office and in a position to accept sweetheart deals. But lending standards have tightened up during the crisis, and if McDonnell specifically got himself into debt problems back in 2008 he would have a lot of trouble getting a loan. And unfortunately even the Governor of Virginia can’t exactly post future payoffs as collateral for a loan. He needs to get the cash up front, even though that’s much more scandalous than waiting until you’re out of office to take the money.

* Correction, Aug. 2, 2013: The original version of this post misstated that Virginia’s constitution limits governors to a single year. The post was later corrected to say that the limit is a single four-year term. The law is more nuanced than that; multiple four-year terms are permitted as long as they are not consecutive.