Leader of Obama's VP Search Team Quits
Former Fannie Mae Chief Was Criticized Over Loan Deals

By Jonathan Weisman
Washington Post Staff Writer
Thursday, June 12, 2008

James A. Johnson, a consummate Washington insider and former Fannie Mae chief executive, resigned yesterday from Sen. Barack Obama's vice presidential search committee, just four days after he was caught up in controversy over low-interest home loans and lucrative business deals.

Obama announced that Johnson would head the selection team shortly after the senator from Illinois claimed the delegates needed to secure the Democratic nomination, but he had spent much of the week since then defending Johnson's role as leader of the vetting of potential running mates. Yesterday, Johnson became a casualty in the back-and-forth over ties to special interests in the presidential campaign as Obama cut him loose.

"Jim did not want to distract in any way from the very important task of gathering information about my vice presidential nominee, so he has made a decision to step aside that I accept," Obama said in a statement. "I remain grateful to Jim for his service and his efforts in this process."

The two other members of the search committee, former deputy attorney general Eric Holder and Caroline Kennedy, the daughter of President John F. Kennedy, will press forward with the process, Obama's campaign said.

The resignation followed a week of headlines targeting a low-key political professional who has operated in the inner circles of power since the Carter administration. Johnson, 64, was pulled into Obama's orbit last year by former commerce secretary William M. Daley, a close friend of Johnson's and an Obama ally, according to a Johnson confidant. Johnson had led Sen. John F. Kerry's vice presidential vetting committee in 2004, and Kerry also recommended him to Obama, citing his discretion, professionalism and secrecy, two Obama advisers said. Because Johnson had pored over the financial and personal secrets of many Democratic vice presidential possibilities, Obama aides reasoned, he had already done much of the work that would be required this year.

"Jim Johnson is a very experienced, very discreet, very capable individual who is performing a voluntary function without pay, without interest," Kerry said yesterday before the resignation was announced. "That's it. That is the full measure of this."

But the Obama campaign found itself on the defensive after the Wall Street Journal reported Saturday that the former Fannie Mae chief had received millions of dollars in home loans -- some of which may have been below average market rates -- from Countrywide Financial, a partner of Fannie Mae and a leading purveyor of subprime mortgages.

The Washington Post reported yesterday that alleged accounting manipulations for 1998 had resulted in maximum payouts to Fannie Mae's senior executives -- $1.9 million in Johnson's case -- when the company's performance that year would have yielded no bonuses. Even after he left Fannie Mae in 1999, Johnson received millions of dollars in guaranteed consulting fees and perks that included an office, two secretaries and a car and driver for himself and his wife.

Still more questions emerged about Johnson's role on corporate boards that had approved the kind of lucrative executive pay packages that Obama routinely excoriates on the campaign trail.

By yesterday, Republicans were using Johnson's role in the Obama campaign to question the basic premise of Obama's candidacy.

"Jim Johnson's resignation raises serious questions about Barack Obama's judgment," said Tucker Bounds, a spokesman for Sen. John McCain, the presumptive Republican nominee. "Selecting the vice presidential nominee is the most important decision a presidential candidate can make and one even Barack Obama has said will 'signal how I want to operate my presidency.' By entrusting this process to a man who has now been forced to step down because of questionable loans, the American people have reason to question the judgment of a candidate who has shown he will only make the right call when under pressure from the news media."

The Obama campaign shot back that McCain's own vice presidential vetter, Arthur B. Culvahouse, remains at his post despite having lobbying ties. Culvahouse has lobbied for limits on civil lawsuits, for a moratorium on Internet taxation, and for Fannie Mae on occasion. At least five McCain staff members have left the campaign because of their lobbying connections.

"We don't need any lectures from a campaign that waited 15 months to purge the lobbyists from their staff, and only did so because they said it was a 'perception problem,' " Obama spokesman Bill Burton said.

To Republicans, and even some Democrats, Johnson undermined Obama's claim to be an outsider, untainted by the cozy relationships that envelop Washingtonians. Johnson's personal baggage, critics said, called into question his capacity to recognize political vulnerabilities in potential Democratic running mates and Obama's judgment in entrusting him with the task.

Excessive pay for corporate executives has become an easy target for politicians, including Obama, and federal regulators were sharply critical of Johnson's $1.9 million bonus for 1998. The bonus was based on alleged earnings manipulations at Fannie Mae that the Securities and Exchange Commission found to be fraudulent. Though Johnson was not accused of participating in the accounting manipulations, he did not return any of the money.

In a statement provided to Bloomberg News, Johnson said he had done nothing wrong, and he dismissed recent reports as a litany of "blatantly false statements and misrepresentations." But he wanted to avoid potentially damaging Obama, he said.

Johnson, who was an executive assistant to Vice President Walter F. Mondale and a chairman of the Kennedy Center Board, has been seeking a return to government for years. In 2004, he had hoped a Kerry victory would make him White House chief of staff or Treasury secretary, former Kerry campaign aides said yesterday, and he had similar ambitions with Obama.

"It's probably a great example of how you deal with a misfortune. You move quickly," said Peter D. Hart, a Democratic pollster. "By next Monday, or even Friday, it's nowhere."

Staff writers Perry Bacon Jr., David Hilzenrath and Shailagh Murray contributed to this report.

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