Correction to This Article
ยท A June 11 Page One article incorrectly described James A. Johnson as having been Vice President Walter Mondale's chief of staff. Johnson was Mondale's executive assistant.

Obama's Choice of Insider Draws Fire

By Jonathan Weisman and David S. Hilzenrath
Washington Post Staff Writers
Wednesday, June 11, 2008

Last month, Sen. Barack Obama turned to James A. Johnson, a former Fannie Mae chief executive and Washington insider since the Carter administration, to lead the vetting of potential running mates for the Democratic Party's presumptive presidential nominee.

But four years earlier, as Johnson was angling for a job if Sen. John F. Kerry (D-Mass.) was elected president, Fannie Mae did some vetting of its own. Company executives had grown so worried about the lucrative consulting deal they had cut with their former CEO that they considered enlisting an outside investigator to comb through the deal "in light of issues that could come up during Senate confirmation . . . or White House review of the consulting contract," according to company documents unearthed by federal regulators.

For Republicans seeking to tarnish Obama's image as a squeaky-clean outsider hoping to clean up Washington -- not to mention divert attention from questions about lobbyists working in Sen. John McCain's campaign -- Obama's embrace of Johnson has been a gift.

"He's tagged himself as a different kind of politician," said Republican strategist Mark Corallo. "He's supposed to transcend party, transcend politics. He's exploited that more than anyone in recent memory, and it becomes demoralizing to all the starry-eyed Obamaphiles who are saying, 'I thought he was different.' "

The questions about Johnson began after the Wall Street Journal reported Saturday that he received more than $2 million in home loans that might have been below average market rates from Countrywide Financial, a partner of Fannie Mae and a leading purveyor of the kind of subprime mortgages that spawned a national housing crisis.

Responding to questions yesterday about that article, Obama said: "I am not vetting my VP search committee for their mortgages. These aren't folks who are working for me. They're not people who I have assigned to a particular job in a future administration."

But the questions surrounding Johnson's past suggest the difficulties Obama will face as his campaign expands from an underdog insurgency to a general-election operation. He has little choice but to pick up experienced political insiders -- and the baggage they bring with them.

"This is a game that can be played," Obama told reporters in St. Louis. "Everybody who is tangentially related to our campaign, I think, is going to have a whole host of relationships. I would have to hire the vetter to vet the vetters."

As CEO of Fannie Mae, Johnson, a former chief of staff to Vice President Walter F. Mondale and chairman of the board of the Kennedy Center, was the beneficiary of accounting in which Fannie Mae's earnings were manipulated so that executives could earn larger bonuses. The accounting manipulation for 1998 resulted in the maximum payouts to Fannie Mae's senior executives -- $1.9 million in Johnson's case -- when the company's performance that year would have otherwise resulted in no bonuses at all, according to reports in 2004 and 2006 by the Office of Federal Housing Enterprise Oversight.

In a 2006 civil enforcement action against Fannie Mae, another agency, the Securities and Exchange Commission, called the company's 1998 accounting "fraudulent" and said numbers were "intentionally manipulated to trigger management bonuses."

Johnson left the company before it was swept up in an accounting scandal that tarred its reputation, but even during the years of scandal, Johnson was reaping hundreds of thousands of dollars in consulting fees and other compensation, $3.3 million in all between 2001 and 2006.

Brian Brooks, an attorney for Johnson, said last night that the accounting issues at Fannie Mae were thoroughly investigated, and that "no one has ever suggested that Mr. Johnson was responsible for the accounting decisions at issue, nor has he had any involvement with these accounting issues during his tenure as a consultant since leaving employment with the company in 1999."

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