Oct 12 2008

Obama and Fannie/Freddie CEOs: some clarity

Category: economy,election 2008,McCain,Obama,politicsharmonicminer @ 2:48 pm

As reported at SNOPES, a normally reliable fact-checking website, an email has been making the rounds linking Obama to Jim Johnson, Franklin Raines and Tim Howard.  Johnson and Raines are former Fannie Mae CEOs whose tenures were marked by fraudulent accounting practices and the reporting of false profits to pump up earnings reports and get executive bonuses.  Howard was CFO (Chief Financial Officer) during Raines tenure, and was right in the middle of the false accounting and false profits scandals.

Snopes declares that the email is FALSE.  That’s odd, because significant parts of the email are TRUE, but it does have a few incorrect assertions.  Snopes’ practice in such situations is usually to say something is partly true and partly false, and to be very clear on the distinctions regarding which is which.  One can only wonder why that practice was not followed in this report, which was simply declared FALSE at the top, and only a careful reader would discover that much of it was TRUE.

The email first gives the history of the involvement with Fannie Mae of former CEO Jim Johnson, former CEO Franklin Raines, and former CFO Tim Howard.  Even Snopes does not deny the accuracy of this summary.

What Snopes points out, correctly, is that neither Johnson, Raines, or Howard are “Chief Economic Advisers” with formal relationships to the campaign.

While I have looked for a direct relationship between Howard and Obama, I have not found one.

However, Johnson was deeply involved in the Obama campaign in the role of “vice-chairman”, according to the NewYorkTimes.

With the Democratic National Convention only three months away, Senator Barack Obama has asked a tight circle of advisers to begin conducting a confidential search for prospective running mates.

Mr. Obama, who intends to wait until the final primaries end on June 3 before declaring victory in the presidential nominating fight with Senator Hillary Rodham Clinton, has sworn his advisers to secrecy. The search is in its earliest phases, officials said, and Mr. Obama has asked Jim Johnson, a longtime Democratic hand, to lead the process.

Mr. Johnson, who is a vice chairman of the Obama campaign, [emphasis mine] led the vice presidential search for Senator John Kerry, Democrat of Massachusetts, in 2004 and Walter Mondale in 1984. In recent weeks, officials said, he started to compile information – largely biographical – for a long list of potential running mates.

Eventually, as it became clear that Obama did not want any scrutiny of his relationship with Jim Johnson, Johnson resigned from the campaign.

While Johnson was not officially a “chief economic adviser” to Obama, exactly what were his qualifications for being vice-chairman?  It certainly wasn’t his foreign policy experience, nor his health care expertise, neither of which he has.  Johnson’s primary expertise IS business, housing and economics, and it begs credulity to believe that some OTHER qualifications are the reasons Obama had appointed him vice chairman of his campaign.

Obama’s relationship with Raines, during the campaign cycle, at least, has been less than his relationship with Johnson.  Still, it is not nothing, although the Washington Post has tried to play it down as being essentially nothing.  Here are excerpts of a column on that effort by Jack Kelly:

The Washington Post is a “pretty flimsy” source of information, two Post hotshots declared in an effort to diminish a politically uncomfortable association for Sen. Barack Obama.

Franklin Raines, CEO of the Federal National Mortgage Association (Fannie Mae) from 1999-2004, is the individual most responsible for the subprime mortgage crisis. It was on Mr. Raines’ watch that Fannie Mae went bankrupt.

He was accused of manipulating earnings statements so he could be paid bonuses to which he was not entitled.
In July, Mr. Raines was interviewed by Anita Huslin, a business reporter for the Washington Post.

“In the four years since he stepped down as Fannie Mae’s chief executive under the shadow of a $6.3 billion accounting scandal, Franklin D. Raines has been quietly constructing a new life for himself,” Ms. Huslin’s story began. “He has shaved eight points off his golf handicap, taken a corner office in Steve Case’s D.C. conglomeration of finance, entertainment and health care companies and, more recently, taken calls from Barack Obama’s presidential campaign seeking his advice on mortgage and housing matters.”

Sen. John McCain pounced. In an ad Sep. 18, he said: “Obama has no background in economics. Who advises him? The Post says it’s Franklin Raines, for ‘advice on mortgage and housing policy.’ Shocking. Under Raines, Fannie Mae committed ‘extensive financial fraud.’ Raines made millions. Fannie Mae collapsed. Taxpayers? Stuck with the bill.”

The Obama campaign rushed out statements by Mr. Raines denying he had offered Sen. Obama advice, and by Sen. Obama denying he had sought it.

Who was the source for Ms. Huslin’s assertion that the Obama campaign had solicited Mr. Raines’ advice? Mr. Raines himself.

“I asked Huslin to provide the exact circumstances of that passage,” wrote Michael Dobbs, who writes the Post’s Fact Checker blog. “She said she was chatting with Raines during the photo shoot, and asked ‘if he was engaged at all with the Democrats’ quest for the White House. He said that he had gotten a couple of calls from the Obama campaign. I asked him about what, and he said, Oh, general housing, economy issues.’”

But that conversation is “pretty flimsy” evidence, Mr. Dobbs said. “The McCain campaign is clearly exaggerating wildly in attempting to depict Franklin Raines as a close adviser to Obama,” he said.

Howard Kurtz, the Post’s media writer, said: “(Raines) has never been a close adviser to Obama.”

The McCain campaign never said he was. The only description in the ad of the Obama-Raines relationship is a direct quote from Ms. Huslin’s story. To diminish the impact on Sen. Obama of the disclosure of an unsavory association, Mr. Dobbs and Mr. Kurtz distorted what Sen. McCain actually said.

In other words, the McCain ad was an exact report of Obama’s relationship with Raines as described by Huslin, herself a Washington Post reporter.  One way to attempt to discredit an accurate report is to exaggerate what the report said, then debunk the exaggeration, and hope the truth of the original is lost in the shuffle. That seems to be what’s happening here.

Just a question:  What if John McCain or his campaign had phoned Ken Lay, of Enron notoriety, for just a few minutes of economic advice, and the Washington Post got word of it and printed the story?   What if McCain had gotten enormous contributions from Enron just before its meteoric fall?  The rest of the in-the-tank-for-Obama media would blow that up into the biggest scandal since the WorldCom fraud case.  The double standard is on full display.

Do you recall the lengths to which the press went to attempt to connect George Bush to the Enron scandal, even though there was no “there” there?  So do I.

So, to summarize:  the email declared FALSE by Snopes is incorrect about claiming that Johnson, Raines or Howard are “chief economic advisers” on the Obama campaign.

However, the email declared FALSE by Snopes is correct that Johnson, Raines and Howard were right in the middle of and surely responsible for fraudulent accounting practices and the reporting of false profits to pump up earnings reports and get executive bonuses.

Additionally, while not a “chief economic adviser”, Johnson was closely tied into the Obama campaign as vice chairman and was Obama’s choice to trust in the role of seeking a vice-presidential candidate for Obama, despite his clearly untrustworthy performance at Fannie Mae.  As stated above, it’s difficult to believe that Johnson, whose expertise is primarily financial, was a vice-chairman on Obama’s campaign for some reason other than that expertise.

According to the Washington Post (in an article it may wish it never printed) Obama’s campaign DID call Raines a couple of times for advice on housing and the economy.  That level of participation does not rise to the level of a “chief economic adviser”, but it is not nothing, and bespeaks a comfort level that the Obama campaign has with people who ripped off the public in a very big way.

When I see emails that make exaggerated claims, behind which is some important truth, I almost wonder if the accused campaign made them up, in order to discredit any further accusations in that same direction, when the exaggerations come to light.  Maybe I’m just paranoid…  but I still wonder.

I hope your vision is 20/20, and you’re seeing past the smoke to the exact location of the fire.

A riposte attempted by the Obama campaign, er, I’m sorry, I meant the New York Times, is to try to tie McCain to Fannie/Freddie, as well.  That only works for people who want it to, because there aren’t any discredited Fannie/Freddie CEOs left to go around.   No fraudulent activity can be attributed to Rick Davis, now McCain’s campaign manager, who functioned essentially as president of a company set up by Fannie/Freddie to lobby Congress to keep regulation light.  You’ll have to read pretty far into the NYTimes article to learn that McCain continued to work towards MORE regulation and oversight of Fannie/Freddie, even though Davis, his friend, was working for them.  That, of course, is the behavior of an honest man. Davis did nothing immoral or illegal, except represent a company to congress, and unlike Obama, McCain’s actions make clear that he was completely unmoved either by the relatively small donations he received from Fannie/Freddie or the work of Rick Davis in representing them.

Additional points to ponder

According to Jennifer Rubin:

Fannie Mae and Freddie Mac survived scrutiny by manipulating, cajoling, and lobbying politicians and hiring board members who were politicos (e.g. Jamie Gorelick) rather than mortgage gurus. They hired lobbyists, gave massive donations, obtained nice tax breaks, and sailed below the regulatory radar screen.

Of the 354 lawmakers who received money from Freddie and Fannie between 1989 and 2008, Sen. Chris Dodd received the most. But next was . . . drumroll . . . Barack Obama. Yup. And he was only there for three years. Not too much went to John McCain, about a sixth of what Obama received (h/t Glenn Reynolds.)

But, you say, maybe all the Fannie and Freddie employees who gave money just “liked” Obama. That might make sense with ordinary institutions. But these two had a game plan to influence and sway lawmakers for the purpose of keeping them on the government gravy train and out of the regulatory line of fire. It’s no coincidence that they “liked” Senate Banking Chairman Chris Dodd best of all.

So it would appear that this is precisely what Obama has been railing against: Washington insiders lining the pockets of other Washington insiders while the taxpayers ultimately have to foot the bill. The Agent of Change, it seems, didn’t exactly walk the walk on this one.

Just to focus, Obama, despite being in the Senate only three years (much of that spent campaigning for president), was SECOND in the list of Fannie/Freddie donations for the period from 1989 to 2008.  That’s pretty amazing, given all the other Senators and Congress Critters who had been there the entire time.  Over a 20 year period, McCain received one sixth the Fannie/Freddie donations Obama had gotten in 3 years. Maybe Obama is just really popular with the always trendy loan executive set.

Maybe Obama really is THE ONE.

Apparently there are others who think so:

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2 Responses to “Obama and Fannie/Freddie CEOs: some clarity”

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