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Obama Advisor..Part Of The Meltdown Problem

Mike

Well-known member
Obama Advisor Pledged $1 Trillion in Sub-Prime Loans As Fannie Mae CEO
Monday, September 29, 2008
By Matt Cover, CNSNews.com correspondent

James A. Johnson--the man chosen by Sen. Barack Obama to lead his vice presidential search committee---served as head of the Federal National Mortgage Association, or “Fannie Mae,” from 1991 to 1998, receiving a reported $21 million in compensation upon his departure.

As CEO of Fannie Mae, Johnson set a goal of buying up $1 trillion in low-income mortgage loans, a move that eventually helped trigger what would become the sub-prime mortgage crisis.

Johnson moved between the public sector in Washington, D.C., and the private sector of Wall Street for decades.

A 1966 graduate of the University of Minnesota who later earned a master’s degree from Princeton’s Woodrow Wilson School of Public and International Affairs, Johnson started political life as a Senate staffer before moving on to become director of public affairs for the Minneapolis-based Dayton-Hudson Corporation, the company which would later become Target.

Johnson’s entrée to power came in 1977, when he returned to Washington to serve on fellow Minnesotan Walter Mondale’s vice presidential staff as an executive assistant. He later served as campaign chairman and head of the vice presidential search committee for Mondale’s failed 1984 White House effort.

Back in private industry by 1985, Johnson became a managing director at Lehman Brothers, the recently defunct investment bank. He returned to Washington in 1990, this time as vice chairman of Fannie Mae. In 1991, he became chairman and CEO serving through 1998.

The 3/2 Option

Almost immediately upon taking the helm at Fannie Mae in 1991, Johnson began expanding low-income mortgage lending, unveiling a $10 billion plan to expand low- and moderate-income mortgage lending by using the “3/2 option.”

This option allowed low-income borrowers to secure mortgages by providing just 3 percent of the required 5-percent down payment from their own funds. The other 2 percent could come either as a gift from a family member or a grant from a non-profit agency or state or local government.

At the time, Johnson told reporters in Seattle that the $10 billion initiative targeted “the other 20 percent of the country” that hadn’t yet benefited from federal housing policies because of their low-income status.

This new low-income initiative was part of a broader social agenda that sought to increase home ownership beyond the middle class. In 1992, Johnson told The American Banker that not only was low-income borrowing good citizenship, it was good business.

In that same interview, Johnson suggested that the incoming Clinton administration would be “an activist administration” when it came to low-income borrowing. “There’s a tremendous amount of business to be done--and a tremendous amount of profitable business,” said Johnson.

Fannie Mae opposed any attempt to regulate or monitor that business. In 1992, Congress considered a proposal requiring Fannie Mae and Freddie Mac to disclose their debt to the Securities and Exchange Commission (SEC). Public disclosure of Fannie’s and Freddie’s debt would have allowed the SEC to monitor their business and ensure that these “government-sponsored enterprises,” which were exempt from federal taxes, and had a line of credit with the U.S. Treasury, did not overextend themselves.

Johnson opposed the proposal in a letter to House Financial Services Committee Chairman Rep. Ed Markey (D-Mass.), saying that “exemption from registration requirements” was “embodied in our Charter” and was “an integral element of our capacity to provide continuous liquidity to the secondary-mortgage market.”
Congressional Democrats succeeded in halting the measure.

Meanwhile, Johnson’s prediction that the Clinton administration would be active in pushing low-income mortgages came true. The Department of Housing and Urban Development (HUD) mandated that 30 percent of Fannie Mae’s business be made up of low-income loans by 1994. In a letter to HUD Secretary Henry Cisneros, Johnson speculated that his company would be hard-pressed to meet the new requirements, but that he would make them his top priority.

By March 1994, Johnson not only had met the mandate, he had upped the ante by pledging that Fannie Mae would “transform the housing finance system” by providing $1 trillion in low-income financing by the end of the decade--a pledge that represented not the 30 percent that HUD required, but a full 50 percent of Fannie’s business.

Johnson would set even loftier goals for Fannie Mae, saying that the $1-trillion expansion in low-income loans was to ensure that “every American who wants to get a mortgage will have their loan approved.”

That same year he was named “CEO of the Year” by the George Washington University School of Business and Public Management.

Johnson’s unprecedented offer--that “every American who wants to get a mortgatge will have their loan approved”--became the central theme of Johnson’s tenure at Fannie Mae, with the lending giant opening up 25 new “partnership offices” by 1997. These offices were created to spread the word to local banks and community organizations about Fannie’s new low-income mortgage initiatives.

Credit-scoring and Risk-Taking

The $1 trillion expansion of sub-prime loans was “a contributing factor” to the current financial crisis, according to economist David John of The Heritage Foundation, “but it was not the only factor.” Fannie Mae policies on credit-scoring played an equally important role--and Johnson’s policies set the stage there, too.

Ed Rothschild, a former spokesman for FM Policy Focus, a now-defunct Fannie Mae/Freddie Mac watchdog group, said the mortgage giant’s underwriting standard eventually just “broke down.”

“Credit score, credit history, and all of the kinds of things that would show that you have the capacity to take on whatever mortgage you were applying for and be able to pay for it, that somewhere broke down, and Fannie and Freddie started buying [these risky mortgages],” Rothschild told CNSNews.com.

Credit scores are a grade of a borrower’s credit history, with 700-850 being an “A,” and are used by lenders to assess the likelihood that a borrower will repay their loans. They are based on a combination of five factors: payment history, total current debt, length of credit history, amount of new credit sought, and other minor factors such as the types of credit a borrower has. Scores of ‘B’ and ‘C’, those below 600, are considered to be ‘sub-prime’ and usually require a higher interest rate.

Johnson told a 1995 conference of mortgage lenders in Chicago that credit-scoring was “a vehicle to do more, not an excuse to do less.”

“We abhor the use of credit scoring as a way to deny housing finance to those people who need help the most,” Johnson said. “We won’t put mechanical systems and arbitrary numbers above our faith in your [local lenders’] judgment and we won’t go back and second guess loans you’ve already made…if they don’t match up to a new way of assessing risks or doing business.”

Johnson called the higher interest rates paid by sub-prime borrowers a “tremendous burden” for families and said “it seems we can make A’s out of B’s and C’s in many circumstances” by giving less weight to factors such as divorce or job loss, which would normally lower credit scores.


Johnson further advanced his $1-trillion low-income loan initiative by expanding to more than 50 the number of partnership offices in cities across the country, and boasted in 1997 that Fannie Mae was “on course” to reach the $1 trillion goal by the end of the decade.

At the end of Johnson’s tenure as CEO in 1998, Fannie Mae had provided $500 billion in low-income mortgage financing. His successor, former Clinton budget director Franklin Raines, would provide the remaining $500 billion over the next three years.

Johnson also established the Fannie Mae Foundation, spreading millions of dollars to local governments, colleges, hospitals and social programs, such as homeless shelters.

Johnson became embedded in the Washington, D.C., elite in other venues, too. In 1996, while still CEO of Fannie Mae, he became chairman of the John F. Kennedy Center fro the Performing Arts. At the same time, he was also chairman of the board of the Brookings Institution, an establishment Washington think tank.

In 2001, joined the investment banking firm Perseus LLC, and currently serves on the boards of Goldman Sachs, Target Corp., Gannett Inc., UnitedHealth Group, KB Home, the National Housing Endowment, and Temple-Inland Inc.

In 2004, Johnson re-entered politics, serving as the head of John Kerry’s vice presidential selection committee. After helping the unsuccessful Kerry campaign select Sen. John Edwards as the Democratic vice presidential candidate, Johnson returned to Perseus.

He returned to politics yet again in 2008, to help yet another Democratic presidential campaign pick his running mate. He served Sen. Barack Obama as the leader of his vice presidential search effort until June, when he resigned after it was reported that he had received low-cost home loan from Countrywide Financial Corp.’s CEO Angelo Mozilo.

Obama had criticized Countrywide and Mozilo as examples of the type of corporate corruption that had precipitated the country’s economic troubles.

Johnson did not could not respond to repeated phone inquiries from CNSNews.com.
 
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Anonymous

Guest
Johnson hasn't been with Fannie Mae since 1998 :shock:

Maybe if we spin this hard enough you can blame it to Alexander Hamilton and George Washington for setting up the first tax- on whiskey and carriages...I'll bet they're the ones that caused it all.... :roll: :wink: :lol: :lol: :p

And Jefferson was sleeping with his upstairs maid who was Obamas Great-great-great-great grandmother...

So its all Obamas and the Dems and black folks fault... :shock:
 

TexasBred

Well-known member
Oldtimer said:
Johnson hasn't been with Fannie Mae since 1998 :shock:

Maybe if we spin this hard enough you can blame it to Alexander Hamilton and George Washington for setting up the first tax- on whiskey and carriages...I'll bet they're the ones that caused it all.... :roll: :wink: :lol: :lol: :p

And Jefferson was sleeping with his upstairs maid who was Obamas Great-great-great-great grandmother...

So its all Obamas and the Dems and black folks fault... :shock:

Let's say hello to Mr. Democrat James A. Johnson, who ran Fannie Mae from 1991 to 1998, served as vice chairman from 1990 to 1991, and earlier worked as a managing director at Lehman Bros. and for Vice President Walter F. Mondale. He currently leads the American Friends of Bilderberg and made news earlier this summer when he had to resign as vice-presidential-candidate vetter for Barack Obama "as new details emerged about loans Mr. Johnson received from mortgage lender Countrywide Financial Corp.," according to the Wall Street Journal. In his 1997 profile of Johnson, "The Velvet Fist of Fannie Mae," by Richard W. Stevenson writes that Johnson "hires lobbyists from both sides of the political aisle—last year the company had 36 registered lobbyists making its case in the hallways and hearing rooms of Congress. ... And Mr. Johnson has made Fannie Mae both a launching pad and a landing strip for officials moving in and out of politics and Government in Washington." According to the voluminous "Report of the Special Examination of Fannie Mae" by the Office of the Federal Housing Enterprise Oversight (warning, extra large PDF!), Johnson earned nearly $21 million from Fannie Mae in 1998.

Moving down the Democratic Party food chain, we meet William M. Daley, son of former Chicago Mayor Richard J. Daley and brother of current Chicago Mayor Richard M. Daley. Daley worked as special counsel to President Clinton and chairman of Al Gore's 2000 presidential campaign. He also served as a Clinton secretary of commerce from 1997 to 2000, and earlier as president of Amalgamated Bank in Chicago. He is now an executive at JPMorgan Chase & Co. Daley was appointed to the Fannie Mae board in 1993 by President Clinton.

As part of the "leave no Democrat behind" campaign, Johnson's Fannie Mae hired Walter Hubbell, son of Webster L. Hubbell, in 1994. Walter Hubbell got his job, the Times' Stevenson reports, "after Mr. Johnson and other executives received calls from Administration officials—including Mickey Kantor, who was then the United States trade representative—urging them to do so. At the time, the White House had undertaken an effort to help the Hubbell family financially after the senior Mr. Hubbell's resignation from the Justice Department." He got a slot in the marketing department, where Johnson said he was an ''outstanding" employee.

But Fannie Mae is nothing if not ecumenical. According to the Associated Press, Fannie Mae and Freddie Mac have spent $170 million on lobbying in the past decade. "Fannie Mae's 51-member lobbying stable" includes "former Reps. Tom Downey, D-N.Y., and Ray McGrath, R-N.Y.; Steve Elmendorf, a Democratic political strategist and former congressional aide; and Donald Fierce, a longtime GOP operative. Freddie Mac's list of 91 lobbyists includes former Reps. Vin Weber, R-Minn., and Susan Molinari, R-N.Y." The AP notes the Fannie Mae ties enjoyed by McCain campaign manager Rick Davis and Arthur B. Culvahouse Jr., who helped in McCain's veep search. According to Politico, McCain economic adviser Aquiles Suarez worked as Fannie Mae's director of government and industry relations, and McCain finance co-chairman Frederic V. Malek spent time on the Freddie Mac board.

A totally brilliant and prescient Washingtonian article from 2002 by Ross Guberman harvests a bunch of politicos who benefited from and supported Fannie Mae. Arne Christenson, a former Newt Gingrich aide, was senior vice president for regulatory policy. Tom Donilon was Fannie Mae's executive vice president for law and policy and secretary to the board of directors until 2005. He worked in the Clinton State Department and as part of the 1992 Clinton-Gore transition. William Maloni worked for Rep. William S. Moorhead, D-Penn., the Federal Home Loan Bank Board, and the Federal Reserve before joining Fannie Mae, where he worked in government relations for more than 20 years.* Of Fannie Mae's board of directors, Guberman writes that it is "political by design."

The company's charter gives the President the right to appoint five of the board's 18 members. The idea was to ensure that Fannie fulfilled its public mission. Today the five appointees, considered big winners in the capital's game of spoils, promote the interests of Fannie's shareholders. Recent directors include Ann McLaughlin Korologos, Ronald Reagan's Labor secretary; Ken Duberstein, Reagan's chief of staff; Bill Daley, former Commerce Secretary and Gore spokesman during the 2000 election controversy; and Jack Quinn, counsel to Bill Clinton and lawyer to pardoned fugitive Mark Rich. [Emphasis added.]

The bipartisan Fannie Mae gang appears to have broken few, if any, laws. Their crime was to have practiced—without any thought of the consequences—"access capitalism," which Michael Lewis defined in the New Republic as "a neat solution for people who don't have a whole lot to sell besides their access, but who don't want to appear to be selling their access."

The easiest way to end this article—and I'll take it—is to cite Michael Kinsley's tidy formulation: "The scandal in Washington isn't what's illegal. It's what's legal."

Addendum, Sept. 17: International Economy magazine identified additional Fannie Mae enablers in its July-August 1999 issue in an article by Owen Ullmann titled "Crony Capitalism: American Style." Ullmann fingers Duane Duncan, a Fannie Mae vice president who previously worked as staff director for Rep. Richard Baker, R-La., who chaired the House banking subcommittee; Ellen Seidman, Fannie Mae senior vice president, who worked as director of the Office of Thrift Supervision; Wendy Sherman, president of the Fannie Mae Foundation, who was counselor to Secretary of State Madeleine Albright; Dan Crippen, who lobbied for Fannie Mae after heading the Congressional Budget Office; Ann Logan, executive vice president, who was a policy adviser to Sen. Edward Kennedy, D-Mass., in the 1980s; Thomas Nides, senior vice president, who served as chief of staff to both U.S. Trade Representative Mickey Kantor and Speaker Tom Foley, D-Wash.;* and Eli Segal, director, who was a senior adviser to President Clinton.

******

No discussion of Fannie Mae is complete without mentioning how vociferously it denigrated its critics. See this recent column by Wall Street Journal Editorial Page Editor Paul Gigot. He writes, "The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans." What members of the Fannie Mae gang did I neglect to name? Send nominations to [email protected] (E-mail may be quoted by name in "The Fray," Slate's readers' forum; in a future article; or elsewhere unless the writer stipulates otherwise. Permanent disclosure: Slate is owned by the Washington Post Co.)
 
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Anonymous

Guest
I had to chuckle at Mr.Johnsons comment last week...As everyone was screaming about him having helped Obama vet a V.P. he said how comical it was when he looked out at McBusch- and 7 of the top campaign advisors surrounding McCain now were the same Lobbyiests that were beating his doors down when he was a CEO of Fannie..... :wink: :lol:
 

TexasBred

Well-known member
Oldtimer said:
I had to chuckle at Mr.Johnsons comment last week...As everyone was screaming about him having helped Obama vet a V.P. he said how comical it was when he looked out at McBusch- and 7 of the top campaign advisors surrounding McCain now were the same Lobbyiests that were beating his doors down when he was a CEO of Fannie..... :wink: :lol:

And you believed it???? roflmao
 
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