Letters to the Editor

• What is the real story

  [Read the article: Obama's big fat Countrywide mess]
  [Read more letters about this article: Here]

  I agree that the response overtly from the Obama campaign was bad. But here's another take and the corollarly question is is Obama allowing himself to be swiftboated too easily? Don't have an answer. Would love clarification as Salon seems to be buying the beef which might be tainted. If a knowledgable reader can weigh in, I'd appreciate it.

  From Huff po

  How The Wall Street Journal Fabricated a Scandal to Impugn an Obama Supporter, James Johnson

  David Fiderer, 06.11.2008

  John Dickerson took the bait. As did Josh Gerstein the New York Sun. Both overlooked the disclaimers embedded in the text, and presented somebody else's speculation as demonstrable fact. And suddenly, there is buzz in the Washington press corps that gives Republicans a pretext to argue that Democrats are just as corrupt the GOP.

  Here was Dickerson's lead in Monday's Slate:

  "Jim Johnson, the man Barack Obama has picked to lead his vice-presidential vetting team, has gotten preferential treatment for personal loans from Countrywide Financial, a company Sen. Obama and others have blamed for helping to create the subprime mortgage mess."

  The claim of preferential treatment is based on a June 7, 2008 Wall Street Journal article which says something altogether different:

  "A comparison of the Fannie Mae officers' terms with interest rates prevailing when they got their loans raises the possibility Countrywide gave them preferential terms. But it's impossible to tell for sure from public documents. An array of other factors also can account for lower-than-average rates, including a borrower's income, total assets and credit score; how big the loan is compared with the home's value; and how many "points" a borrower may have paid upfront in order to get a lower rate."

  [Emphasis added.]

  Translation for those who lack any financial sophistication: They don't know jack. The numbers themselves bear this out. Johnson obtained three mortgages from Countrywide, each with an initial five-year fixed rate. Here's how the contractual rates compared with the market averages at time, as determined by the Journal:

  October 23, 1998: Amount: $393,000; Initial Rate: 6.375%; Market Average: 6.2%. Rate was .175% above market average.

  November 8, 2001: Amount: $1,300,000; Initial Rate: 5.250%; Market Average: 6.0%. Rate was .75% below market average.

  June 20, 2003: Amount: $972,000; Initial Rate: 3.875%; Market Average: 4.3%. Rate was . 4125% below market average.

  So, according to the Journal's analysis, the Johnson received a mortgage that was no more than 75 basis points below the market average for the initial five-year period. Could that difference be explained by points paid up front, the home's appraised value versus the loan value, refinancing penalties or any number of other variables? Absolutely.

  James Johnson was the CEO of Fannie Mae, the biggest buyer of Countrywide's mortgages, until December 1998. Consequently, the only mortgage Johnson obtained when there was a potential conflict of interest was a $393,000 mortgage that was 17.5 basis points "above" the market average.

  The Journal article is highly misleading in that it places Johnson's tenure at Fannie Mae in a false context:

  "Mr. Johnson led Fannie Mae from 1991 to 1998. He and Countrywide's Mr. [Angelo] Mozilo worked together to streamline the underwriting process. 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.' Their efforts helped to lead to a boom in mortgage lending that brought huge profits to both companies but is now ending badly."

  The recklessness in mortgage lending never really took off until 2003, when mortgage lenders like Countrywide abdicated traditional underwriting standards for documentation, income and asset values. Fannie Mae's exposure to the subprime market has always been a tiny percentage of its portfolio. It is false and misleading to tie the subprime crisis to Fannie Mae's lending policies of the 1990s.

  Then the follow-up: On June 9 and June 10, the Journal's Washington Wire echoed the same disparaging insinuations, with "Obama Won't 'Vet the Vetters'."

  With the flimsy foundation laid by the Journal's news section, its notorious editorial page went into its familiar smear mode against Johnson and the Obama campaign:

  "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."

  Again, there was only one mortgage extended while Johnson was at Fannie Mae; it does not appear on its face to have been at below-market rates; and there was no evidence presented to suggest that he avoided disclosure of that single mortgage. Another fatal flaw in that passage is that the Fannie Mae accounting scandal was caused almost entirely by actions that took place beginning in 1999, after Johnson left Fannie Mae.*

  The smear campaign had its desired effect. Johnson just announced that he was resigning from the Obama team.

  So to recap, here's how the right wing media campaign works:

  Step 1: Plant a story based on speculation rather than hard evidence.

  Step 2: Rely on sloppy journalists (e.g. John Dickerson) to present the speculation as fact.

  Step 3: Use the "factual" premise to argue that Democrats are just as ethically compromised as Republicans.

  A year ago, it would never have occurred to me that the initial news story in the Journal was intended as a setup for a larger partisan narrative. But that was then.

  ____________

  Permalink Wednesday, June 11, 2008 06:24 PM