Friends of Barack

From WSJ.com June 11, 2008; Page A22
"Barack Obama may have come up with a creative way to solve the housing recession: Let everyone buy property at a discount the way he did from Tony Rezko, and give everyone in America a discount mortgage the way Angelo Mozilo of Countrywide did for Fannie Mae's Jim Johnson. Team Obama's real estate and mortgage transactions are certainly a change from business as usual. They suggest old-fashioned back-scratching below even current Beltway standards.

A former CEO of mortgage financing giant Fannie Mae, Mr. Johnson is now vetting Vice Presidential candidates for Mr. Obama. But he is also a textbook case for poor disclosure as regulators sifted through the wreckage of Fannie's $10 billion accounting scandal. Despite an exhaustive federal inquiry, Mr. Johnson managed to avoid disclosing one very special perk: below-market interest-rate mortgages from Countrywide Financial, arranged by Countrywide CEO Angelo Mozilo. Journal reporters Glenn Simpson and James Hagerty broke the story this weekend.

Fannie Mae tells us that Mr. Johnson did not inform the company's board of these sweetheart mortgage deals, nor did his CEO successor Franklin Raines, who also received such loans. We can understand why. Fannie bought mortgages from loan originator Countrywide, and then packaged them into securities for sale or kept the loans and profited from the interest. Mr. Mozilo told Dow Jones in 1995 that he was "working very closely . . . with Jim Johnson of Fannie Mae to come up with a rational method of making the process more efficient by the use of credit scoring."

Since Fannie was buying Countrywide's loans, under terms set by Mr. Johnson and later Mr. Raines – or by people in their employ – the fact that Fannie's CEO had a separate personal financial relationship with Countrywide was an obvious conflict of interest. The company's code of conduct required prior approval of such arrangements. Neither Mr. Johnson nor Mr. Raines sought such approval, according to Fannie.

Even if they had received waivers from the board to enjoy these perks, conscientious board members would then have wanted to disclose the waivers to investors. Post-Enron, the Sarbanes-Oxley law requires such disclosures. But even in the late-1990s, when the Friends of Angelo loans began, board members would likely have raised red flags.

Former SEC Chairman Harvey Pitt tells us that "the best way to deal with issues like this is not to have these kinds of relationships. From both the Countrywide and the Fannie perspective, it is simply bad policy to permit loans to 'friends' on more favorable terms than others similarly situated would be able to get."


One question is whether Messrs. Johnson and Raines were using their position to pad their own incomes that were already fabulous thanks to an implicit taxpayer subsidy. (See the table nearby.) But the bigger issue is whether they steered Fannie policy into giving Mr. Mozilo and Countrywide favorable pricing, which means they helped to facilitate the mortgage boom and bust that Countrywide did so much to promote. A further federal probe would seem to be warranted, and we assume Barney Frank and his fellow mortgage moralists will want to dig into this palm-greasing from Capitol Hill.

The irony here is that Mr. Obama has denounced Mr. Mozilo as part of his populist case against corporate excess, calling Mr. Mozilo and a colleague in March "the folks who are responsible for infecting the economy and helping to create a home foreclosure crisis." Obama campaign manager David Plouffe also said in March that "If we're really going to crack down on the practices that caused the credit and housing crises, we're going to need a leader who doesn't owe these industries any favors." But now this protector of the working class has entrusted his first big task as Presidential nominee to the very man who received "favors" in return for enriching Mr. Mozilo.

Yesterday, ABC News asked Mr. Obama whether he should have more carefully vetted Mr. Johnson and Eric Holder, who is working with Mr. Johnson on veep vetting. Correspondent Sunlen Miller noted Mr. Johnson's loans from Countrywide and Mr. Holder's involvement as Deputy Attorney General in the Clinton Administration in the pardon of fugitive Marc Rich. Said Mr. Obama: "Everybody, you know, 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."

Vetting Mr. Johnson's finances would have been time well spent, judging by a May 2006 report from Fannie Mae's regulator, the Office of Federal Housing Enterprise Oversight (Ofheo). Even if Mr. Obama considers the advisers helping him select a running mate "tangentially related" to his campaign, he might have thought twice about any relationship with Mr. Johnson.

Addressing the company's too smooth (and fraudulent) reported earnings growth in the late 1990s and early 2000s, Ofheo reported: "Those achievements were illusions deliberately and systematically created by the Enterprise's senior management with the aid of inappropriate accounting and improper earnings management . . . By deliberately and intentionally manipulating accounting to hit earnings targets, senior management maximized the bonuses and other executive compensation they received, at the expense of shareholders."

* * *
The regulator described how, despite an internal Fannie analysis that valued Mr. Johnson's 1998 compensation at almost $21 million, the summary compensation table in the firm's 1999 proxy suggested his pay was no more than $7 million. Ofheo found that Fannie had actually drafted talking points to deflect such media questions as: "He's trying to hide how much he's made, isn't he?" and "Gimme a break. He's hiding his compensation."

To this list we would add one more, directed at Mr. Obama: Is this what you mean by bringing change to Washington?
"

More on Michelle Obama's Raise and Barack's Earmarks

From National Review on March 13, 2008:
"One of Obama's Earmark Requests Was for the Hospital That Employs Michelle Obama

Dan Riehl notes, via Amanda Carpenter, that in the list of earmarks he requested, $1 million was requested for the construction of a new hospital pavilion at the University Of Chicago. The request was put in in 2006.

You know who works for the University of Chicago Hospital?

Michelle Obama. She's vice president of community affairs.

As Byron noted, "In 2006, the Chicago Tribune reported that Mrs. Obama’s compensation at the University of Chicago Hospital, where she is a vice president for community affairs, jumped from $121,910 in 2004, just before her husband was elected to the Senate, to $316,962 in 2005, just after he took office."


Looks like that raise was worth it."

Obama Sought Earmarks for His Wife's Employer, Then She Got a Raise

From Chicago Sun-Times by Lynn Sweet on March 13, 2008: "WASHINGTON--After refusing since June to make public earmark requests from 2005 and 2006, Sen. Barack Obama (D-Ill.) is releasing Thursday all the earmark requests he has made since he entered the Senate in 2005.

This disclosure was made just before the campaign starts a conference call with Sen. Claire McCaskill (D-Mo.) to discuss congressional earmarks. This interest in earmarks comes as Obama and Sen. Hillary Rodham Clinton (D-N.Y.) --knowing one of them will face anti-earmark Sen. John McCain (R-Ariz.) in the fall--have signed on to a bill calling for a one-year earmark moratorium. Sen. Dick Durbin (D-Ill.) is against an earmark moratorium.

Here's one highlight: Obama sought money for the University of Chicago Hospitals. Wife Michelle works for the University of Chicago Hospitals, appointed in spring 2005 as vice president for community and external affairs at the University of Chicago Hospitals. She is now on leave from the job to campaign for her husband. Top campaign adviser and friend Valerie Jarrett is the Chair of the University of Chicago Medical Center Board and also Chair of the Executive Committee of that board. She has also been named Vice-Chair of the University's Board of Trustees. Obama taught at the U. of Chicago law school and the Obama's two daughters attend school there.

from the Obama campaign

Obama Requested $1 Million For Construction Of A New Hospital Pavilion At The University Of Chicago. In 2006, Obama requested that the University of Chicago receive $1 million to support its Construction of New Hospital Pavilion. For more than 75 years, the University of Chicago Hospitals (UCH) has provided state of the art medical care on the South Side of Chicago. UCH is one of the largest Medicaid providers in Illinois, and it provided more than $90 million in uncompensated care for Medicare and Medicaid patients this past year. To continue providing the best care for patients from all walks of life, UCH is proceeding with the construction of a new 600,000 square foot facility that will ensure their ability to provide the best care for patients well into the future. Funding will go towards assisting the construction and equipping a new hospital pavilion that will increase the Hospitals' clinical capacity by over one-third. [Obama Request Letter to the Senate Appropriations Subcommittee on Energy and Water, 4/7/06]

Obama did release his 2007 earmark requests but his Senate and campaign office has refused, without explanation, tto disclose 2005 and 2006 until now.

I asked campaign spokesman Bill Burton why the change of heart.

"Sen. Obama throught it was appropriate to release them," Burton said."

Obama's politically expedient ethics conversions

From Chicago Sun-Times by Lynn Sweet on March 14, 2008: "WASHINGTON -- Sen. Barack Obama, who had been declining to reveal earmarks he requested in 2005 and 2006, finally did so Thursday and probably would prefer the story to be about how his campaign challenged Democratic presidential rival Sen. Hillary Rodham Clinton, to do the same for her entire Senate tenure.

Instead, since I have some reporting history here, I am noting a pattern that has emerged: This is Obama's third ethical conversion of convenience -- taking on a higher standard, but only when it appears to be politically expedient. Obama is making government transparency and ethics a centerpiece of his presidential campaign.

The Obama record:


• • Obama took 23 subsidized rides on corporate jets in 2005, the first year he was in office. In January 2006, the very week he became the lead Senate Democrat on ethics, his office announced that in the future, his political war chest would pay the entire cost of using private planes.

• • Obama took donations from federal lobbyists and political action committees for his House and Senate races and his own Hopefund political action committee. He only stopped taking this political money -- speaking out against it -- when he launched his presidential campaign in February 2007.

• • Obama did disclose earmark requests he made in 2007; however, his office has been refusing since June, without explanation, to disclose earmarks Obama had sought previously. Thursday's decision to disclose came on the very day the Senate voted on a one-year earmark moratorium. It failed 71-29. Clinton and Obama voted in favor.

Obama and Clinton have signed on to this moratorium measure knowing one of them will face the presumptive GOP presidential nominee, Sen. John McCain, who is leading the drive against earmarks and does not request them. Last month, McCain taunted Obama on lack of earmark disclosure. Obama will seek no earmarks for Illinois this year.

Obama's presidential campaign hosted a conference call Thursday to trumpet his new disclosures even as they were being posted on the Internet. The call featured Obama ally Sen. Claire McCaskill (D-Mo.). McCaskill praised Obama's openness and said, "And I think if we are not willing to share things, like, you know, appointment calendars or earmarks, I think it is a bad sign for truly making a change in the way this place operates."

Since McCaskill raised the point: Obama has provided bare-bones information about his Senate schedule. I asked McCaskill about this. "I would think he would be happy to share information about how he spends his days," she said. He is not.

Clinton spokesman Philippe Reines said that Clinton "has made public the funding she has helped to secure and will make public the requests she submits this year."

Earmarks are tucked into legislation, controversial because they bypass review. Obama requested and did not secure $1 million for a hospital pavilion at the University of Chicago. Obama's wife, Michelle, is vice president for community and external affairs, now on leave, at the U. of Chicago Hospitals. Obama also sought money for the Center for Neighborhood Technology, where his neighbor Jacky Grimshaw is a honcho.

In 2005, Obama asked for $500,000 for Kids Voting USA, a nonpartisan, nonprofit organization encouraging young people to vote.

In 2006, Obama requested $250,000 for the Chicago Park District's Obesity Prevention-Affordable Fitness Centers. He also asked for $8 million for a defense contractor linked to General Dynamics. Obama's Illinois co-finance chairman, Jim Crown, is on the company's board of directors. "