10/23/2008 05:12 am ET | Updated May 25, 2011

Senator McCain's Fannie Problem

Senator McCain's campaign has been vociferously attacking Senator Obama with an ad that is running online, and soon on TV, that links Senator Obama to Jim Johnson, former CEO of Fannie Mae. Senator McCain also criticized Senator Obama on this at a rally.

But Robert Zoellick, whom Jim Johnson hand-picked to be Fannie Mae's Executive Vice President in charge of lobbying (see here and here), was the very person hand-picked by Senator McCain himself for one of the senior-most roles in his campaign, to oversee the campaign's domestic and foreign policy development.

Mike Allen, then White House Correspondent of Time Magazine and current chief political correspondent for, reported that:

"Zoellick, ...told TIME that McCain contacted him as he was leaving the State Department this summer, and said he is delighted to advise the prospective campaign. 'I have great respect for John McCain's character, sense of honor and record and have worked with him on a host of foreign policy and economic issues, and think he would make a great President who would fit the times and challenges,' Zoellick said."

Zoellick, who was U.S. Trade Ambassador in President Bush's first term and is headed for Wall Street until he joins McCain, will be one of the top members of the prospective campaign's senior staff. The officials say the arrangement was worked out about three months ago and came about because of mutual admiration between the Senator and Ambassador Zoellick, and through the involvement of Gov. Jon Huntsman Jr. (R) of Utah, who's an active McCain supporter and is close friends with Zoellick. McCain already has strong views and a large stable of advisers on foreign policy, so Zoellick will manage that process. The domestic side will involve more policy development.

"It's a big get," the GOP official said. "Zoellick was Deputy Secretary of State under Secretary of State Condoleezza Rice from February 2005 until July."

Slate reported, quoting American Banker journal of July 23, 1997, that Zoellick was Fannie Mae's Executive Vice President in charge of lobbying and "has used his close ties to Republicans in Congress, such as Speaker of the House Newt Gingrich, R-Ga., to defend Fannie Mae from new taxes."

During most of then Fannie CEO Jim Johnson's term, it was Robert Zoellick who was Fannie's Executive Vice President responsible for lobbying and government relations.
At Fannie Mae, Jim Johnson worked from 1991 to 1998 and Zoellick from 1993 to 1997.

Robert Zoellick is well known for being among the last remaining signatories of the ultra-aggressive and now infamous Project for a New American Century's call for war in Iraq who still holds high office. Others like Rumsfeld, Wolfowitz, Perle, and Armitage have largely disappeared. Last year, following the well-publicized dalliance of fellow neocon Paul Wolfowitz, Robert Zoellick was nominated by President Bush and rubber-stamped into office by the docile and unwieldy Board of the World Bank, comprising a total of 48 Directors and resident Alternates who remain at World Bank headquarters throughout the year. Inside accounts point to $100 million being spent every year for the World Bank Board alone. Indeed, it is actually ironic that Zoellick currently heads an institution in which the US contributes over a billion dollars a year (and has put in more than $60 billion over the years) and is expected to deploy the soft power for development that will make war unnecessary. Also, Zoellick lost the support of liberals for his role in the unworkable safeguards on medicines access, patents and public health in developing countries related to the WTO's TRIPS agreement, and conservatives for playing to the gallery of World Bank staffers inimical to any focus on corruption.

Congressional Hearings and Robert Zoellick
After consultations with legal experts, I have explained that a US citizen who enjoys World Bank immunities, whether it is Wolfowitz or Zoellick, can indeed be subpoenaed by Congress (see here and here and here) for discussing actions prior to joining the World Bank, and Zoellick would have to comply with Congressional subpoenas to explain having headed the lobbying activities for Fannie Mae. What were the lobbying activities, what was lobbied for, and indeed against, and how was it done? Also, the McCain campaign has accused then-CEO Jim Johnson of improprieties and accounting irregularities, and it was Zoellick as Executive Vice President for legal, regulatory and government relations who signed off on those very financial statements at Fannie Mae. Therefore, it would be another area for a subpoena from the Finance and/or Banking Committees.

Further, Congress has indicated that it will hold hearings to get to the bottom of the Fannie Mae mess. Presumably, because both Senator Obama and Senator McCain have railed against lobbying, it will be necessary to determine what lobbying and other "government relations" activities of Fannie Mae, a government sponsored enterprise, contributed to its fall and lack of oversight. Also, what parallels exist in terms of financial and other management problems at the World Bank, another government sponsored enterprise in which the US is the largest shareholder, and hundreds of billions of dollars of loans are outstanding with little oversight (see here and here. )

Should the McCain campaign claim that Robert Zoellick was selected by Senator McCain for the top-level McCain campaign position but did not actually advise Senator McCain because he was nominated by President Bush for the World Bank job, it would be another highly unlikely claim concerning a Washington, D.C. insider for decades, with such close links to Senator McCain, not to have been advising him for years. But that too could be a test under oath for Robert Zoellick at a Congressional hearing.

Senator Lugar and Robert Zoellick Ties
Partial political contribution records indicate that Senate Foreign Relations Committee Ranking Republican Senator Lugar has received campaign contributions from Robert Zoellick since at least 1995. Additionally, were fund-raisers organized or arranged by Zoellick and/or family members that would have brought in hundreds of thousands of dollars more? Shouldn't a Chairman or Ranking Member with such close links with an individual to be subpoenaed recuse themselves from any such role? Might this be an additional reason
that on multilateral bank corruption matters no hearings have been held in the Committee since Robert Zoellick took office?

Robert Zoellick, Signatory to the PNAC Call for War, and an Obama Presidency?
Former Bush Treasury Secretary Paul H. O'Neill, currently an Obama Campaign economic advisor, has had experience in thinking through how to reform multilateral institutions. Sebastian Mallaby reports that during the time James Wolfensohn was the Bank's president, amidst widespread complaints of mismanagement and worse, then-Treasury Secretary O'Neill interviewed potential replacements who would be more respectful of better management practices. His insights into the challenges of reforming multilateral institutions will be very pertinent. And, with the experience of the departure of Wolfowitz in 2 years of a five year term, the position of World Bank head could be up for grabs in an Obama presidency.