McCain Aide Was on Freddie Mac's Payroll

John McCain was last night trying to contain damage to his presidential campaign amid reports that a firm linked to his campaign manager was on the payroll of the doomed mortgage lender at the heart of America's credit crisis.

The reports that the lending giant Freddie Mac had paid a lobbying company owned by McCain's campaign manager, Rick Davis, $15,000 a month surfaced on a day when the Wall Street crisis was by far the dominant issue in the elections.

The potential for damage to McCain was underlined by the proximity of Davis's firm to the mortgage companies which precipitated the current crisis.

The $15,000 monthly payments, which began in 2005, continued until last month - about the time Freddie Mac and Fannie Mae were taken over by the government and about two years after Davis took up his job as campaign manager.

The continued arrangement contradicts assertions from McCain as recently as Sunday that there was no connection between his manager's lobbying firm, Davis Manafort, and the mortgage companies.

The revelations, reported in the New York Times and Newsweek, are the latest in a series of skirmishes about the influence of lobbyists on campaigns. But it could accelerate an erosion in support for McCain as the public mood sours about the $700bn bailout of Wall Street firms. A new poll yesterday gave Barack Obama a clear lead over McCain after weeks of an apparent dead heat.

The Washington Post-ABC news poll gave Obama 52% against 43% for McCain. Obama's lead over McCain was commanding on issues of the economy, with voters saying by 53% to 39% that they trusted the Democrat over the Republican.

The first response yesterday from the McCain camp was defiance - both to the reports about Freddie Mac's payments to Davis's firm and the new poll. In a statement it attacked the New York Times, which was the first to report the story, as an "Obama advocacy organisation", and demanded the newspaper investigate the Democrats for links to lobbyists.

But the McCain camp did not deny payments made to Davis Manaford. Instead, it said that Davis had separated from the firm in 2006, and had not received a salary since. "Davis has seen no income from Davis Manafort since 2006. Zero," it said.

There was an effort from the McCain camp to create distance from Davis. The campaign manager skipped a scheduled lunch with reporters yesterday.

The Obama camp went on the attack. "It is clear that John McCain and Rick Davis did not tell the truth about Davis's continuing financial relationship with Freddie Mac, one of the actors at the centre of this financial crisis," the Obama campaign said in a statement. It also sought to influence the agenda for Friday's debate on foreign policy, with a speech from the vice-presidential candidate, Joe Biden, accusing McCain of being "divorced from reality" on national security.

McCain has also been accused of strongly favoring Georgia in its recent conflict with Russia because of the influence of adviser Randy Scheuneman. Scheuneman had worked as a lobbyist for the Georgian government.

The McCain campaign, meanwhile, has accused Obama of taking advice on housing from Franklin Raines, a former CEO of Fannie Mae. It has been running ads showing Obama and Raines, who is also African-American, together.

Davis, who worked on McCain's failed 2000 run for the Republican leadership, began working directly for Freddie Mac and Fannie Mae that year as head of the companies' pressure group, Homeownership Alliance. The alliance was set up to oppose regulation of the mortgage industry. Davis earned $30,000 a month for his work which ended in 2005, when Fannie Mae and Freddie Mac disbanded the coalition, according to the New York Times.

But it said the firm jointly owned by Davis continued to be paid $15,000 a month from the mortgage giant. The newspaper cited two sources which said the firm had been kept on the payroll because of Davis's close ties to McCain.

Profile: Rick Davis

Rick Davis, day-to-day manager of John McCain's campaign, has been steeped in Republican politics for nearly 30 years. A veteran of Ronald Reagan's 1980 and 1984 presidential campaigns, he worked in the White House from 1985 to 1987. In 1988 he helped George Bush Sr's campaign coordinate debates, and managed the 1996 Republican convention for Bob Dole.

Davis was a sought-after commodity in the 2000 race when McCain asked him to help gauge support for a White House bid then made him campaign manager. After McCain's run collapsed, Davis remained close to McCain.

In 2001 he was tapped to head the Homeownership Alliance, an advocacy group formed by mortgage lender Fannie Mae to fend off restrictions on its business sought by big banks.

With Paul Manafort, another Republican strategist, Davis owns Davis Manafort, a consultancy that has taken in $2.4m since 1999 to lobby the Senate for telecoms and technology firms. Last summer Davis was made McCain's campaign manager as support flagged.