Brian Taylor, BBC Scotland's political editor, didn't mince his words. "Wendy Alexander has broken the law," he announced on the Politics Show yesterday as Alexander's no-show continued. No-one was around to contradict him. Not only was the Scottish Labour leader hiding from the media, so was everyone of any significance in the party.

What a desperate situation: was no-one in the Labour Party prepared to step up to the plate and defend their own leader? Labour appeared to be in denial, unwilling or unable to face up to the enormity of the situation. This isn't any old law we are talking about, but one of Labour's own flagship statutes: the Parties, Elections and Referendums Act 2000. This makes clear that any attempt to conceal the identity of a political donor is against the law, as is acceptance of a donation from anyone who is not on the electoral register.

This is not some obscure piece of redundant legislation but a fresh and potent statute designed by Labour to drive sleaze out of politics altogether. Breaching this law carries an unlimited fine or one year in jail. The way things are going, a number of senior Scottish Labour politicians face losing their political careers and gaining a criminal record.

What possessed them? How could they have played such a dangerous game for such paltry stakes - a mere 950 quid in the case of the illegal donation from the tax-exile property developer, Paul Green? This was the great unanswered question yesterday as the full implications of the Sunday Herald's dramatic revelations were absorbed by the political establishment. The paper's political editor, Paul Hutcheon, had acquired a secret internal memo dated November 5 identifying the dodgy provenance of the Green donation and exploding Alexander's claim that she had not known about it until Thursday lunchtime. Here at last: a smoking gun. Still no word from Alexander.

When a response finally came late on Sunday afternoon, there was no attempt to deny the story or the authenticity of the document. Her statement said that she expected to be "exonerated of any intentional wrongdoing" and that she continues to work to "improve the lives of fellow Scots". Well, one fellow Scot at least. The view among Labour insiders is that the Prime Minister, Gordon Brown, had instructed Alexander that it was her solemn duty was to remain at her post, to the bitter end, rather than leave the great Broon exposed at Prime Minister's question time.

If Alexander had taken the long walk, the Tory leader, David Cameron, would have savaged an already weakened Gordon Brown on Wednesday and demanded that other Labour ministers, such as Harriet Harman, should also fall on their swords. That would be too much for the great man to bear. But I wouldn't like to be Alexander in the coming few weeks and months as she toughs it out for Brown.

Last week in Holyrood there were extraordinary scenes as she was pursued by the press pack up and down the parliament. She had better invest in a pair of good running shoes because she's going to have to sprint across the Garden Lobby half a dozen times a day to avoid a media which is in ugly mood right now. "Ms Alexander, did you break the law?" "Er, yes. But no. But yes." Or perhaps she will just sit in her room, like last week, and not come out at all. Can a party function with a leader who is unable to face the press, opposition or the general public? We are about to find out.

Can Labour participate in the process of making laws in Holyrood when its leader, and half the shadow cabinet, have admitted to breaking the law? I don't know, because we have never been in this situation before. I cannot think of any historical precedent of a party leader admitting to law-breaking and yet remaining in post. Tony Blair never conceded anything illegal in the cash-for-honours inquiry, and that was bad enough. But it has always been assumed in British public life that if someone actually admits to acting illegally, they simply have to resign. Yes, this looks like another first for Scotland.

Alex Salmond will, of course, have a field day at First Minister's questions. He has carefully avoided any obvious gloating over Alexander's difficulties, in part because the Nationalists couldn't believe their luck. They had been hoping that in some way Alexander might carry on in office despite being horribly damaged. But they didn't think it was possible after the Labour leader's savaging in the Sunday press. Now they will be able to ridicule her as a human shield who is only remaining in post to save Brown's backside.

If Alexander is insisting on her own wrongdoing being unintentional, does that not mean she is pointing the finger of guilt very much in the direction of those close to her as the ones responsible? This is a heavy price to pay, and I wonder if they will all be prepared to pay it.

We know that all is not well in the Labour leader's inner circle, since this story has been driven by a series of damaging leaks from people with access to the most sensitive inside information. The Sunday Herald document, for example, could not have been widely circulated within Labour, but it found its way into the public domain. Someone somewhere harbours a very deep grudge against Alexander and is prepared to go to extraordinary lengths to settle accounts.

I'm afraid this has been the Scottish Labour story since devolution - factionalism, cronyism, incompetence and personal vendettas. They can't seem to help themselves. The party seems to have lost the will to live. Alexander was their best hope in years for a clean break from the old numpty machine politics, but it has broken her instead.

No-one takes any satisfaction in seeing her reduced to this state, certainly not this columnist. She is a politician of integrity, intelligence and honesty. She enjoyed a lot of goodwill in the Scottish press, the academic world and in civic Scotland. She was on the point of transforming Labour's entire approach to home rule in a way that could have brought the party back into the political mainstream.

But mad party disease has struck again. Labour seems determined to hand the keys of Scotland to Alex Salmond.