Some Perspective on Jim Johnson

Many readers may be familiary with this story from the New York Sun about Barack Obama's advisor, Jim Johnson. He is advising Obama on his choice of running mates. It turns out that Johnson received 7 million dollars worth of loans from Countrywide in what are described by Countrywide as "sweetheart deals".

In order to understand just how sleazy this is, I should give everyone the basic philosophy of mortgage underwriting. Banks try to always put everything qualification matrices. In other words, if one's credit score is X then the loan to value is Y or less. Of course, it is significantly more complicated than that because these matrices have multiple criteria all at once. The important thing to understand is that banks have hard and fast rules about what does and doesn't work. Furthermore, banks use these same complicated matrices to determine interest rates. The reason is obvious. Banks look at far too many loans to try and judge each individually. The set up sophisticated guidelines that they use to balance risk and profitability. Even so called exceptions are still done through complicated matrices. For instance I once got an exception on a title issue. I had a continuity of title issue once. I got an exception because the current owner was on the title ten months when the bank wanted twelve months. Of course, the bank told me that they usually gave exceptions down to ten months. In other words, even their exceptions are really nothing more than relaxed rules.

The reason I point this out is because what Jim Johnson got was something totally different. He got a sweetheart deal that was only given to a handful of people. Banks entire profit models are built on generating guidelines and matrices that will find loan products on a mass level that they believe to be profitable. Giving a small group of people a loan no one else can get goes against the fiber of the bank's philosophy of making money. Any person that gets such a loan has a lot of influence and power and they use that to get something no one of normal stature could get. If that person is a politician, that makes it even worse. The sort of sweetheart deal that Johnson got is everything that Obama has claimed not to be and yet Johnson finds himself at the highest levels of influence in the Obama campaign.

To make matters worse, Johnson got this loan from Countrywide. Countrywide has been rumored to be on the brink of bankruptcy for months. Whether or not that rumor is true or not, what cannot be argued is that they made far too many bad loans. These sweetheart loans were themselves bad loans, unless they came with certain quid pro quo. The perception here is just awful. While Countrywide was putting poor folks into loans they couldn't afford, Jim Johnson was getting a loan no one else could get.

The main problem for Barack Obama is that he has decided to run on nebulous concepts that sound good until they meet reality. He has been able to run the change mantra to the general election, however unless that change is defined, his opponents will define it. Now comes word that Barack Obama associates himself with the same sleazy influence peddlers that all politicians associate themselves with. Frankly, this should surprise no one. Politicians are powerful people, and as much as we would like them to mostly commisserate with commoners, the reality is that they mostly know other powerful people. Many times powerful people use their power to get special treatment others would never get. Is this really a surprise? Thus, it should surprise no one that friends of Obama got special treatment on their mortgage. What should surprise everyone is how Obama thought he could hold himself up to such high ideals.

This is of course something that McCain needs to hammer because it goes right to the heart of Obama's them. In fact, he has. Here is how the McCain camp responded.

With millions of Americans struggling to pay their mortgages, it raises serious questions about Obama’s judgment when we learn members of his campaign leadership are receiving favors that the average American would never get. With Obama discussing the economy today, he needs to stand up and address the mortgage scandals within his campaign.

The reality is that there are probably plenty of folks associated with the McCain campaign that received favorable treatment in one way or another. Frankly, does anyone really blame Johnson for using his influence to get a sweethear deal? Wouldn't anyone in his position do the same thing? Frankly, it speaks a lot more about Angeol Mozilo's (CEO of Countrywide) lack of scruples and judgement than anything else. That said, Obama set a bar that no politician can reach and now he is paying for that bar.