Which do you remember? the "Party of corruption" or Tony Rezko? Likely the former (what Nancy Pelosi termed Republicans in the Democrat's sweep of the House). Why would most Americans remember one more than the other? Because when it's a Democratic presidential candidate involved there's always a few free passes first. We'll see how the AngeloGate goes.

Blatant hypocrisy is something even the left leaning media has a tough time swallowing. And hypocrisy is hiring an advisor from the very company one was demonizing just days before. Obama said Jim Johnson, who resigned hours ago from conducting Obama's VP search, didn't work for him. For whom did he work then, senator, as he was helping you choose your VP?

WSJ Countrywide Financial Corp. makes mortgage loans through a vast network of offices, brokers and call centers. But a few customers have gotten their loans a special way: through Countrywide Chief Executive Angelo Mozilo.

These borrowers, known internally as "friends of Angelo" or FoA, include two former CEOs of Fannie Mae, the biggest buyer of Countrywide's mortgages, say people familiar with the matter.

One was James Johnson, a longtime Democratic Party power and an adviser to Sen. Barack Obama's campaign, who this past week was named to a panel that is vetting running-mate possibilities for the presumed nominee. Another was Franklin Raines, a onetime Clinton administration budget director, who left Fannie Mae amid an accounting scandal in 2004.

There is nothing illegal about a mortgage firm treating some borrowers better than others. But if Fannie Mae officials received special treatment, that could cause a political problem for the government-sponsored, shareholder-owned company.

The Wall Street Journal editors pile on, justifiably so:

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?

Labels: 2008, Countrywide Financial, Hypocrisy, Obama, rezko

Along those lines, via John Fund -- funny how Obama isn't getting the same press scrutiny on his campaign finance problems that both Clinton and McCain receive.

On Tuesday, Barack Obama may well wrap up the Democratic nomination. Yet how he rose so quickly in Chicago's famously suspect politics -- and who his associates were there -- has received little scrutiny.

That may change today as the trial of Antoin "Tony" Rezko, Mr. Obama's friend of two decades and his campaign fund-raiser, gets under way in federal court in Chicago. Mr. Rezko, a master fixer in Illinois politics, is charged with money laundering, attempted extortion, fraud and aiding bribery in an alleged multimillion dollar scheme shaking down companies seeking state contracts.

John McCain's dealings with lobbyists have properly come under a microscope; why not Mr. Obama's? Partly, says Chicago Tribune columnist John Kass, because the national media establishment has decided that Chicago's grubby politics interferes with the story line of hope they've set out for Mr. Obama. Former Washington Post reporter Tom Edsall, who now teaches journalism at Columbia University, told Canada's Globe & Mail that "reporters have sometimes allowed themselves to get too much caught up in [Obama] excitement." Then there are Chicago Republicans, loath to encourage the national party to pounce because some of their own leaders are caught in the Rezko mess.

For its part, the Democratic Party may once again nominate a first-time candidate they haven't fully vetted politically. Democrats flocked to Michael Dukakis in 1988, ignoring Al Gore's warnings about Willie Horton; later they were blindsided by revelations about Bill Clinton after he was elected president.

This year, Hillary Clinton made a clumsy attack on Mr. Rezko as a "slum landlord" during one debate. But her campaign has otherwise steered clear -- at least until last Friday, when Howard Wolfson, a top Clinton aide, suggested to reporters on a conference call that "the number of questions that we don't know the answers to about the relationship between Mr. Rezko and Mr. Obama is staggering." Mr. Obama's campaign told me they have answered all questions about Mr. Rezko and have no plans to release any further records.


Mr. Obama has admitted that the 2005 land deal that he and Mr. Rezko were involved in was a "boneheaded" mistake, in part because his friend was already rumored to be under federal investigation. The newly elected Mr. Obama bought his $1.65 million home on the same day, June 15, that Mr. Rezko's wife bought the plot of land next to it from the same seller for $625,000. Seven months later she sold a slice of the land to the trust that Mr. Obama had put the house into, so the senator could expand his garden.

Mr. Obama has strenuously denied suggestions that the same-day sale enabled him to pay $300,000 under the house's asking price because Mrs. Rezko paid full price for the adjoining lot, or that he asked the Rezkos for help in the matter. Both actions would be clear violations of Senate ethics rules barring the granting or asking of favors.

Still, there are anomalies. Mr. Obama admits that he and Mr. Rezko took a tour of the house before it and the adjoining plot were sold. Financial records given to federal prosecutors a year later show Mrs. Rezko had a salary of only $37,000 and assets of $35,000. In court proceedings at that time, to explain how much his bail should be, Mr. Rezko declared that he had "no income, negative cash flow, no liquid assets."

So where did the money for Mrs. Rezko's $125,000 down payment -- and the collateral for her $500,000 loan from a local bank controlled by Amrish Mahajan, like Mr. Rezko a Chicago political fixer -- come from?

The London Times reports that, three weeks before the land transactions, Nadhmi Auchi, an Iraqi billionaire living in London, loaned $3.5 million to Mr. Rezko, who was his Chicago business partner. Mr. Auchi's office says he had "no involvement in or knowledge of" the property purchase. Mr. Auchi is a press-shy property developer (estimated worth: $4 billion) who was convicted of corruption in France in 2003 for his involvement in the Elf affair, the biggest political and corporate fraud inquiry in Europe since World War II. He was fined $3 million and given a 15-month prison term that was suspended provided he committed no further crimes.

Mr. Auchi was also a top official in the Iraqi oil ministry in the 1970s. He has for years vigorously denied charges he had dealings with Saddam Hussein after the first Gulf War. However, an official report to the Pentagon inspector general in 2004 obtained by the Washington Times cited "significant and credible evidence" of involvement by Mr. Auchi's companies in the Oil for Food scandal and illicit smuggling of weapons to the Hussein regime.

In 2003, Mr. Auchi began investing in Chicago real estate with Mr. Rezko. In April 2007, after his indictment, Mr. Auchi loaned another $3.5 million to Mr. Rezko, a loan that Mr. Rezko hid from U.S. Attorney Patrick Fitzgerald's office. When Mr. Fitzgerald learned that the money was being parceled out to Mr. Rezko's lawyers, family and friends, he got Mr. Rezko's bond revoked in January and had him put in jail as a potential flight risk.

In court papers, the prosecutor noted that Mr. Rezko had traveled 26 times to the Middle East between 2002 and 2006, mostly to his native Syria and other countries that lack extradition treaties with the U.S. Curiously, Mr. Auchi has also lent an unknown sum of money to Chris Kelly, who, like Mr. Rezko, was a significant fund-raiser for Illinois Gov. Rod Blagojevich (himself under investigation by a federal grand jury as an alleged beneficiary of the Rezko shakedowns). Mr. Kelly is himself under indictment for obstructing an IRS probe into his activities.

Mr. Obama says he has "no recollection" of meeting Mr. Auchi during a 2004 trip the billionaire made to Chicago, and no one believes he knew of his background. While his name will come up in the trial as a beneficiary of Rezko donations (since donated to charity), Mr. Obama will not be called to testify.

There may be nothing more in Mr. Obama's dealings with Mr. Rezko beyond an "appearance of impropriety." Still, Mr. Obama does have an obligation to explain how he fits into Chicago politics. David Axelrod, Mr. Obama's Karl Rove, is a longtime spoke in the Daley machine that's dominated Chicago for a half century. Gov. Blagojevich, also part of the machine, shared key fund raisers with Mr. Obama.

"We have a sick political culture, and that's the environment Barack Obama came from," Jay Stewart, the executive director of the Chicago Better Government Association, told ABC News. He notes that, while Mr. Obama supported ethics reforms as a state senator, he has "been noticeably silent on the issue of corruption here in his home state, including at this point, mostly Democratic politicians."

Mr. Obama will eventually have to talk about Illinois, if only to clear the air. After John McCain last month was attacked for cozy ties to lobbyists, he held a news conference and answered every question. Hillary Clinton held a White House news conference on Whitewater and her cattle futures. Mr. Obama must do the same for questions about Mr. Rezko and "the Chicago way" of politics. If he doesn't, they may increasingly haunt his candidacy.

Labels: 2008, campaign finance, media bias, Obama, rezko