The Wall Street Journal apparently didn’t know just how big a story they had with Countrywide Financial. Not only did they expose Barack Obama adviser Jim Johnson’s conflict of interest in receiving favors from Countrywide while CEO of Fannie Mae, they also found that several members of Congress have benefited from similar sweetheart deals from the lender while its bad loans helped trigger the subprime meltdown. Now the Journal wants a little competition in its investigation — from the feds:

For the sake of its shareholders and the taxpayers who are ultimately on the hook, Fannie should immediately launch an internal investigation into the terms offered to Countrywide, and exactly what role Messrs. Johnson and Raines played in the negotiation of these terms. Did these men exert any pressure on Fannie employees to do business with Countrywide?

Congress also needs a full accounting of the contacts between Countrywide and the politicians receiving favors from the lender. Did Countrywide ask for and receive assistance from the Friends of Angelo? With Senate Banking Chairman Dodd at the center of the scandal, ranking member Richard Shelby (R., Ala.) and House Financial Services Chairman Barney Frank (D., Mass.) will have to lead the inquiry.

But taxpayers should not have to wait for the results of an investigation. Democrats in Congress are trying to pass a bailout for mortgage borrowers and lenders like Countrywide, and they have been holding reform of Fannie Mae and its cousin Freddie Mac hostage to get President Bush to agree. Mr. Dodd is one of the main hostage-takers. It is time he and Mr. Frank dropped this political ransom-taking and finally subjected Fannie and Freddie to tough oversight. This means giving a regulator the power to set their capital ratios and portfolio securities limits, so that taxpayers have some protection against their potential losses.

Meanwhile, until it is clear how much Countrywide will benefit from Senator Dodd’s proposed $300 billion mortgage rescue – and exactly how Mr. Dodd came to do business with Countrywide – Congress should call a halt to legislating bailouts. Taxpayers deserve no less.

Where exactly is Barack Obama on this? When he could score a few populist points on the campaign trail, Obama had no problem casting Countrywide as the main villain in the credit crisis. Now that Angelo Mozilo’s private loan program to high-ranking Democrats has been discovered, including his now-departed adviser, Obama’s silence has been positively deafening.

The FBI needs to look into these connections, not just Fannie Mae and Congress. If Fannie Mae did business with Countrywide because of their political connections and their sweetheart loans, then serious fraud may have been committed. The losses which Congress intends to cover will come out of our pocketbooks, and we need an objective look at whether we’re paying for someone else’s crime. Both Congress and Fannie Mae have plenty of motivation to keep taxpayers from discovering that truth.

Countrywide accounted for 26% of Fannie Mae’s business. Bank of America accounted for 4%. Yet it’s BofA buying Countrywide, not the other way around — and the Journal wonders how that happened. Perhaps Chris Dodd, Kent Conrad, Barbara Boxer, Nancy Pelosi, and others can explain that. Maybe the Democrats can explain what happened to “the most ethical Congress ever”. They can start explaining it to the FBI, and then get back to the voters afterward.