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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
Republicans Assail Head of VP Vetting

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."

But Johnson is not the only member of Obama's vice presidential vetting committee that Republicans have targeted.

They also are preparing a case against former deputy attorney general Eric Holder for his role in the granting of a pardon to fugitive financier Marc Rich in the last days of the Clinton White House.

In December 2000, as Rich's lawyers were closing in on the pardon, one of them, Jack Quinn, singled out Holder in an e-mail. "The greatest danger lies with the lawyers," Quinn wrote his co-counsels. "I have worked them hard and I am hopeful that E. Holder will be helpful to us."

Any attacks on Holder will probably not mention that one of Rich's lawyers, I. Lewis "Scooter" Libby, went on to become Vice President Cheney's chief of staff.

Other prominent Washington supporters of Obama present their own problems. Gregory B. Craig, for example, a senior Obama foreign policy adviser, represented Juan Miguel Gonzalez in 2000, as Gonzalez was trying to bring his son Elian back to Cuba. The incident still rankles the Cuban community in Florida, a pivotal state in the presidential election.

For now, it is Johnson who provides the most immediate fodder for attack. His lavish lifestyle, multiple homes, personal staff and chauffeur strike a dissonant chord as Obama excoriates Republican "tax cuts for the rich" and calls McCain, the presumptive Republican nominee, an out-of-touch Washington insider.

Although OFHEO said Johnson benefited from the earnings manipulations, the agency did not accuse him of participating in them, and the SEC did not accuse him of any wrongdoing. He ended his term as chairman and chief executive of the District-based company in December 1998, before Fannie Mae reported its financial results for that year. In 1999, he served as chairman of the company's executive committee.

A federal regulatory agency suggested that even if Johnson's compensation for 1998 were entirely justified, Fannie Mae obscured its magnitude, disclosing pay of $6 million to $7 million a year in 1998. But Johnson was allowed to defer 111,623 shares of Fannie Mae stock, a move that was relegated to a footnote and not included in the company's summary compensation table.

Total compensation that year was closer to $21 million, according to an internal Fannie Mae analysis cited by OFHEO.

Anticipating questions about the agreement in 2004, Fannie Mae even drafted question-and-answer talking points, including: "Gimme a break. He's hiding his compensation."

Among Johnson's post-employment perks were an inflation-adjusted consulting contract of $390,500 that began in 2002, two employees and a chauffeur, and office space at the Watergate, even after he began work at Perseus, an investment firm that gave him his own office. His lawyer described that compensation yesterday as "consistent with what is customarily provided to retiring Fortune 100 CEOs."

Johnson was supposed to reimburse the company for 50 percent of the chauffeur's time, but that did not apply to time spent waiting for Johnson or driving his wife. Consequently, he reimbursed Fannie for about 15 percent of the cost.

On March 17, 2005, as Fannie Mae was engulfed in accounting scandal, Johnson contacted board chairman Stephen B. Ashley and said, "I should do my part to assist Fannie Mae's efforts to reduce expenditures at this difficult time."

His part was temporarily reducing his consulting fees, which had increased to $600,000 a year and an end to his support staff and driver.

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