The 109th Congress has become the focus of hindsight in the financial meltdown of the past few days.  With perhaps as much as one trillion dollars in federal funds in play for bailouts under a Bush administration proposal, people want to know why no one saw this coming before now.  As Kevin Hassett reports at Bloomberg, Congress had an opportunity to force better practices on Fannie Mae and Freddie Mac, but some familiar names failed to act:

It is easy to identify the historical turning point that marked the beginning of the end.

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission’s chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie’s position on the relevant accounting issue was not even “on the page” of allowable interpretations.

Then legislative momentum emerged for an attempt to create a “world-class regulator” that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

Alan Greenspan told Congress that they needed to act, and quickly:

If Fannie and Freddie “continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,” he said. “We are placing the total financial system of the future at a substantial risk.”

What happened?  Despite moves from Republicans such as Chuck Hagel, John Sununu, Elizabeth Dole, and John McCain to get more regulatory oversight on Fannie and Freddie, Congress took no action.  Why?  Fannie and Freddie had already co-opted Chris Dodd with over $130,000 in campaign contributions over 20 years, and over $120,000 to Barack Obama over less than four years.  Hillary Clinton  took tens of thousands in eight years, and Chuck Schumer also opposed any new regulation on markets that Congress had forced open.

We can play blame games for the next several months and years, but what would be the point?  In this case, there is a point, and it couldn’t be more clear or important.  We have two candidates running for President who would bring much different styles to executive authority over regulatory responsibility.  Barack Obama and his allies took the money and stayed on the sidelines rather than take proactive action to resolve the credit crisis.  McCain and his co-sponsors of this bill had the right idea and instincts, but could not get any cooperation from Clinton, Schumer, or Obama.

Does this mean that Obama gets the entire blame for the financial crisis?  Of course not; it’s shared among many people who failed to act, and some who acted poorly to create the problem in the first place by mandating loans to ill-qualified lenders and then allowed those loans to form the basis of widely-traded securities.  McCain doesn’t become the sole protagonist in this morality play, either.  However, this demonstrates the qualities of both judgment and leadership of both men — and those two qualities are critical for determining which man should be running the executive branch for the next four years.