Obama's VP Selection Head Didn't Disclose Countrywide Loans

The man Sen. Barack Obama has put in charge of his search committee for a vice presidential running mate, Jim Johnson, once served as a highly-paid CEO of mortgage giant Fannie Mae. It has already been revealed that Johnson received below market interest rates on million-dollar loans from Countrywide Financial Corp., which has been at the center of the sub-prime mortgage meltdown and has been a frequent target of criticism by Sen. Obama during his presidential campaign. What we didn't know is that Johnson failed to disclose those loans to Fannie Mae's board of directors. The Wall Street Journal drops this latest bombshell:

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.

The WSJ ponders whether Johnson used his position to pad his own income. From 1998-2003, Johnson earned $21 million in executive pay, bonuses and stock options at Fannie Mae. Did Johnson steer favorable pricing to Countrywide, which helped facilitate the mortgage boom and bust in which Countrywide had a big role? The WSJ notes the irony of Obama's full frontal assault on Countrywide's CEO, Angelo Mozilo:

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.

The WSJ concludes by asking Obama: "Is this what you mean by bringing change to Washington?"

UPDATE: Johnson has quit Obama's VP search committee according to Bloomberg. The statement on his departure:

"I would not dream of being a party to distracting attention from that historic effort,'' he said in a statement. `"I believe Barack Obama's candidacy for President of the United States is the most exciting and important of my lifetime.''

Johnson, 64, said that he had done nothing wrong, saying "blatantly false statements and misrepresentations'' had been written about him.

"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 an e-mailed statement.