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October 3, 2012

Analysis: On first big loan, Sherman collected 5.4% interest

http://www.jewishjournal.com/blog/item/analysis_on_first_big_loan_sherman_collected_5.4_interest/

Photo

A clip from the Los Angeles Times from January 7, 1990, shows an ad for investment certificates that yield more than 8 percent annually. That's a higher rate than the approximately 5.4 percent in annual interest charged by Rep. Brad Sherman to his campaign committee on a loan he made in 1989. Rep. Howard Berman's campaign has attacked Sherman for engaging in the legal practice, accusing Sherman of using his campaign accounts as a "vehicle of self-enrichment."

Two days ago, Rep. Howard Berman’s reelection campaign unveiled its latest line of attack against opponent Rep. Brad Sherman, drawing attention to Sherman’s practice of charging interest on personal loans he made to his campaign committees and accusing him of using those accounts as a “vehicle for self-enrichment.”

Yesterday, I kicked the tires of that claim a bit, and found it unconvincing.

Unfortunately, I got my math wrong – Sherman’s loans were made to his campaign at a rate of about 5.4 percent interest, not 3.5 percent as I initially reported.

Still, the basic determination holds up: the Berman campaign is using deceptive numbers in this attack, and the idea that Sherman lent money to his campaign committees specifically in order to enrich himself is dubious.

To be sure, the substance of the Berman camp’s attack is accurate – Sherman did loan his campaign committee money and charged interest on those loans. In so doing, he engaged in a practice that, while legal, is frowned upon by some watchdog groups.

But the Berman camp's presenting Sherman's practice as "reprehensible" is less easy to justify.

Unlike some lawmakers who have charged far higher rates of interest on personal loans to their campaign committees, Sherman made his loans at rates lower than the prevailing rates he could’ve earned in, say, a money market fund (see photo). And Sherman earned interest both on the principal that had not yet been repaid and the interest that had also accrued, a standard practice in banking.

Furthermore, the Sherman campaign’s defenses of Sherman’s actions – that (a) the practice of charging a reasonable rate of interest on personal loans to one’s campaign fund was and is legal and (b) that Sherman charged his campaign account a rate of interest lower than the one he could have earned by investing his cash elsewhere – are true.

How deceptive are Berman’s numbers? The campaign’s new anti-Sherman Web site outlines the so-called Brad Sherman Scam by looking at a loan of $237,399 made by Sherman to one of his campaign committees on December 29, 1989.

“Ten years later,” the text on the site reads, “his [Sherman’s] campaign had paid back the principal — but the interest had continued to accrue.

“By 2000,” the text continues, “the unpaid interest had grown to $111,148.97 — a 47 percent profit on Sherman's original investment.”

That 47 percent number is the total amount of interest paid to Sherman on what was an 11-year loan. The annual rate on that loan, I found out, is far lower. After a good deal of back and forth, the Berman campaign told me that the annual rate of interest charged to Sherman’s campaign on that loan was 6 percent. The Sherman campaign said it was “about 5 percent.” My independent calculations (which I’m happy to share – just email me) show that the interest rate is likely somewhere between those two numbers.

But since 5.4 percent doesn’t sound as much like a “scam” as 47 percent does, the Berman campaign is going to be presenting the latter number to voters.

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