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New York Times, June 12, 2008 article


The New York Times




June 12, 2008

Obama Aide Quits Under Fire for His Business Ties

CHICAGO — James A. Johnson, the consummate Washington insider whom Senator Barack Obama tapped to head his vice-presidential search effort, resigned abruptly on Wednesday to try to silence a growing furor over his business activities.

Mr. Johnson’s departure deprives Mr. Obama of decades of experience and access to Washington’s power elite. Mr. Johnson has been a fixture in Washington political and legal circles for three decades, and he led the vice-presidential search team for Senator John Kerry, the Democrats’ presidential nominee in 2004.

His resignation, at the start of a general election contest in which the candidates have pledged to run issue-based campaigns, came after days of intense scrutiny from the news media and attacks from Senator John McCain and Republican Party officials over mortgages Mr. Johnson, a former chief executive of Fannie Mae, received on favorable terms from the Countrywide Financial Corporation, the mortgage company that was a central player in the subprime lending crisis. Mr. Johnson also faced questions about his role on compensation committees that awarded large payouts to corporate executives.

His resignation highlights the difficulties for Mr. Obama’s campaign in trying to live up to his promises to remain independent of the Washington establishment and the special interests that populate it.

In a statement issued by his Chicago campaign headquarters, Mr. Obama said Wednesday afternoon that “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.”

Mr. Obama had defended Mr. Johnson as recently as Tuesday, saying that he had only a “tangential” role and that the campaign would not hire people to, as Mr. Obama put it, “vet the vetters.”

But as questions about Mr. Johnson grew, Mr. Obama felt he had to move quickly to rid the campaign of a man who had come to symbolize the Washington fixers that Mr. Obama was running against, aides said. One aide, who spoke on the condition of anonymity to discuss internal deliberations, said that Mr. Obama, a relative newcomer to Washington, had little loyalty to Mr. Johnson, a major presence in Democratic politics for more than two decades.

But the loss will carry some costs for the Obama team. The controversy is the latest example of the demonization of so-called Washington insiders, who both profit from the political system and bring irreplaceable experience and insight to it.

Mr. Johnson, in a statement issued Wednesday afternoon, said he was leaving the campaign not because he had done anything wrong but to save Mr. Obama further grief.

“I believe Barack Obama’s candidacy for president of the United States is the most exciting and important of my lifetime,” he said. “I would not dream of being a party to distracting attention from that historic effort.”

He added: “I am extremely proud of my service to Fannie Mae and in other important dimensions of public service. This withdrawal should in no way imply that I accept the blatantly false statements and misrepresentations that have been written about me in recent days.”

Mr. McCain and national Republican officials, who had seized on the questions being raised about Mr. Johnson, gloated over his departure on Wednesday.

“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,” Tucker Bounds, a McCain spokesman, said in a statement.

Mr. Obama’s spokesman, Bill Burton snapped back a few minutes later in an e-mail message: “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.’ ”

Although Mr. Obama’s campaign is known for its stability and cohesiveness, Mr. Johnson is at least the second high-profile adviser to step down in the wake of controversy. In March, Samantha Power, a close friend and foreign policy adviser, resigned after referring to Senator Hillary Rodham Clinton as “a monster.”

Mr. Johnson, who for nearly two months has been quietly arranging a network of lawyers as he built a confidential vice-presidential vetting system, informed the campaign of his decision on Wednesday. He angered some Obama campaign advisers, officials said, by failing to disclose specific information about his business dealings. A visit to Democratic leaders on Capitol Hill this week also attracted unwanted attention, officials said, and was at odds with Mr. Obama’s desire to keep the search for a running mate secret.

The decision to resign was Mr. Johnson’s, campaign officials said privately, but advisers believed it was the only way to end the controversy.

Mr. Johnson, 64, is the vice chairman of Perseus, a $2 billion private equity fund in Washington. A native of Minnesota, he began his career as a Senate staff member and became a policy aide to Vice President Walter F. Mondale. In 1981, he left the government, founding Public Strategies, a corporate consulting firm, and later was a managing director at Lehman Brothers before joining Fannie Mae.

As chief executive of Fannie Mae, the government-sponsored organization that guarantees mortgages for millions of homeowners, Mr. Johnson earned a lucrative paycheck, even by private-sector standards. In 1998 alone, he earned $21 million, according an analysis by federal regulators.

After Mr. Johnson left in 1998, Fannie Mae was caught up in an accounting scandal in which federal regulators found that the company had manipulated its earnings to provide large bonuses for Fannie Mae executives.

While Mr. Johnson was not implicated in the accounting scandal, federal regulators said he had created a culture of arrogance at the company that contributed to its fall from grace.

In Mr. Johnson’s tenure at Fannie Mae, he became close to Countrywide, the hobbled mortgage lender now at the center of the subprime mortgage crisis. Countrywide was Fannie Mae’s largest mortgage provider, which brought Mr. Johnson into contact with Angelo R. Mozilo, Countrywide’s chief executive.

Through that relationship, Mr. Johnson received three home mortgages totaling at least $2 million at rates that appear to be lower than the prevailing mortgage rates at the time. When the story about the personal mortgages broke in The Wall Street Journal last weekend, Mr. Johnson’s business relationships began to draw greater scrutiny.

In addition, Mr. Johnson served on the boards of a number of corporations that were at the center of a furor over excessive executive compensation, a subject that has been not only a campaign cause for Mr. Obama but also the subject of major legislation he introduced in the Senate to rein in such high-dollar pay packages. Mr. Obama’s “Say on Pay” legislation calls for greater shareholder oversight of executive compensation.

Perhaps the best-known case was Mr. Johnson’s board seat at UnitedHealthcare, a Minneapolis company where he headed the compensation committee. In that position, he oversaw and approved executive pay packages that have since come under fire, even becoming symbols of corporate excess and greed.

In years past, Mr. Johnson’s ties hardly raised an eyebrow. But a combination of the ethical standards that Mr. Obama set for his campaign and an explosion of readily available information on the Internet contributed to the controversy.

“Candidates themselves are setting standards that their campaign may not be able to live up to,” said David B. Cohen, an associate professor of political science at the University of Akron. “In politics, you often reap what you sow. And that is the situation that Obama finds himself in right now with Jim Johnson. The rhetoric is idealistic, but the actual practice of politics is different.”

John M. Broder reported from Chicago, and Leslie Wayne from New York. Jeff Zeleny contributed reporting from Washington.



Copyright 2008 The New York Times Company




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