Wednesday, June 11, 2008

Obama and his Jim Johnson problem

Slate's John Dickerson looks at Obama's Jim Johnson flap, and offers this suggestion:

"... it would be great if Obama could show us the instructions for how his new kind of politics works on this front."
The Wall Street Journal has reported that Johnson, the former Fannie Mae CEO (1991-1998) who is on Obama's vice president search team, received favorably priced real estate loans totaling at least several million from Countrywide Financial Corp., whose anything-goes easy credit helped trigger the subprime mortgage crisis. The loans were part of a "friends of Angelo" arrangement initiated by Countrywide CEO Angelo Mozilo, and which also included another former Fannie Mae CEO, Franklin Raines. Fannie Mae is one of the biggest buyers of Countrywide mortgages in the secondary market, and that relationship is one reason eyebrows are being raised.

But the Journal story pinpoints only one "friends of Angelo" loan to Johnson while he was Fannie Mae's CEO. The others occurred later, when Johnson had a consulting contract with Fannie Mae.

For the one mortgage loan he received from Countrywide while he was CEO -- for $392,950, according to the Journal -- Johnson paid 6.375% interest, which was actually above the prevailing average national rate of 6.2%. For at least some of his subsequent loans from Countrywide -- which altogether totaled more than $7 million -- Johnson got interest rates lower than the national range at the time, the Journal said. But it's not clear to what extent he got the lower rates for any other reason than because of his income and other factors that lenders use to determine how much to charge individual borrowers. The Journal article says "it's impossible to tell for sure from public documents" whether Johnson got preferential treatment that other borrowers -- who weren't "friends of Angelo" -- didn't receive.

While nobody has found any wrongdoing by Johnson, Slate's Dickerson says: "...the Obama standard isn't wrongdoing. It's mere connection to the company [Countrywide]. By that standard, this is bad news."

A separate issue -- hard to nail down, with every necessary detail -- is Johnson's role in the corporate culture of Fannie Mae, which was scathingly attacked by the Office of Federal Housing Enterprise Oversight in a report in May 2006. The report singled out the leadership of CEO Franklin Raines, who succeeded Johnson in 1999. It said the conduct of Raines and his "inner circle" was "inconsistent with the values of responsibility, accountability and integrity." While Johnson continued to have high-level relationships with Fannie Mae after he resigned as CEO -- first as a director and later as a consultant -- the OFHEO report does not name him with those executives it singled as as part of Raines' inner circle. Johnson was the beneficiary of a $1,932,000 bonus that the report said was based on financial results favorably distorted by accounting manipulations -- but the bonus was awarded during Raines' tenure as CEO. The report cited a number of executive bonuses that it said were also given based on tricky accounting. In April of this year, the OFHEO issue consent orders settling its cases against Raines and two other former Fannie Mae executives. Raines agreed to pay back $24.7 million and the other executives, $6.675 million. Johnson was not involved in these actions because he was never charged by OFHEO.

In responding to the Johnson-Countrywide issue, Obama, once again, is trying to talk his way out of a problem. "Well, look ... first of all, I am not vetting my vice presidential search committee for their mortgages," Obama said at a press conference in St. Louis. "I mean this is a game that can be played -- everybody you know who is anybody who is tangentially related to our campaign I think is going to have a whole host of relationships."

Dickerson may be setting an excessively high standard for Obama by saying Johnson's "mere connection" to Countrywide is "bad news." But unless Johnson can show, categorically, that he didn't receive preferential treatment -- that he got his low-interest loans because of criteria he met as a borrower, not as a "friend of Angelo" -- Obama should do something besides brush off the issue.

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