Robert Novak

Baker, Hagel and Sen. Richard Shelby, ranking Republican on the Senate Banking Committee, were rare members of committees with jurisdiction who took the issue seriously. The powerhouse Democratic overseers of the banking committees -- Rep. Barney Frank, Sen. Christopher Dodd and Sen. Chuck Schumer -- protected Fannie and Freddie.

Tuesday's hearing was more than an hour old when Hagel became the first senator to ask whether the well-paid officials and directors of the mortgage companies should be held accountable for the crisis. "I'm not looking for scapegoats," Paulson replied. The overriding mood recalled the question repeatedly posed, in a different context, by Bob Dole during his losing 1996 campaign for president: "Where's the outrage?"

Many of Paulson's non-scapegoats have traveled a familiar path from modest net worth to sudden wealth at the mortgage companies, especially Fannie Mae. Most have been Democrats, but token Republicans also have enjoyed the profitable ride. It is an old story, well described in "Crony Capitalism: American Style" by financial affairs reporter Owen Ullman in the July-August 1999 issue of The International Economy magazine. He portrayed rich "rewards" for fortunate insiders, including a $9.5 million income for Jim Johnson in 1998.

In that article, former Treasury official Peter Wallison of the American Enterprise Institute saw Fannie and Freddie posing a "prescription for financial disaster," similar to the savings-and-loan debacle a decade earlier. Wallison on Monday said, "Allowing the continued operation of the companies as private, shareholder-owned institutions, while the taxpayers are ultimately responsible for their losses, recapitulates our experience with the savings and loans less than 20 years ago."

Will Paulson follow Wallison's advice and put the mortgage companies in federal receivership at the expense of shareholders? Wall Street tycoon Hank Paulson was the secretary of the treasury that Bush long had sought and finally found on his third try. Now, grumbling has begun inside the Senate Republican Conference. The grumblers are asking whether Paulson will prove more than a crony in this crisis.

Robert Novak

Robert Novak (1931-2009) was a syndicated columnist and editor of the Evans-Novak Political Report.

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