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This Week in Scandals

Every week, we take stock of how the week unfolded for the stories we’re tracking in Scandal Watch (see the right sidebar). Click here for more information on how we do this and to suggest additions.

1. Market Crisis

Brendan Hoffman/Getty ImagesThey voted against it before they voted for it. On Monday markets reeled after the U.S. House of Representatives said no to the bailout bill. Lawmakers on Capitol Hill scrambled to add a little honey to the deal while Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke and President Bush continued to plead for a speedy resolution. The U.S. Senate voted on and approved (again) a revised bill—chock full of pet projects—on Wednesday. By Friday afternoon the House had passed the bill by a significant margin, and Bush had signed the $700 billion Wall Street rescue into legislation.

The FBI is stepping up its investigation into the accounting practices of Freddie Mac and Fannie Mae. The mortgage giant announced on Monday they had received subpoenas from the U.S. Attorney’s Office for the Southern District of N.Y. The Securities and Exchange Commission is investigating as well.

The New York Times reported on how a 2004 regulatory change that upped the amount of debt investment banks could take on contributed to the current financial market meltdown.

Troubled Wachovia finds itself in the middle of a custody battle, with Citigroup and Wells Fargo both vying for acquisition of the bank. In a deal brokered by the FDIC, Citigroup was set to acquire Wachovia. But Wells Fargo has stepped in with a sweeter bid—one that will not require FDIC involvement. Federal regulators are now attempting to mediate between the two suitors.

2. Alaska!

Sen. Ted Stevens’ (R-AK) corruption trial almost ended in a mistrial this week when prosecutors failed to properly disclose evidence to the defense team. But U.S. District Judge Emmet Sullivan ruled that the violations, though significant, were not significant enough to warrant a mistrial. The prosecution team did not go unscathed, however. “How does the court have confidence that the public integrity section has public integrity?” Judge Emmet Sullivan asked.

Before that, the government’s star witness had offered damning testimony against Stevens. Bill Allen, formerly a close friend to Stevens and CEO of the now defunct oil services company VECO, testified a Stevens associate had instructed him to not bill the senator for gifts and services, particularly for renovations on Steven’s Alaska home. Allen also testified he had been told that thank-you notes with requests for bills he would receive should be ignored.

3. Palin ‘Troopergate’

Challenges to the Palin Troopergate investigation made by five Republican state legislators and Alaska’s attorney general were combined into one suit early this week. And by the end of the week, Alaska Superior Court Judge Peter Michalski had tossed out the suit, stating that the inquiry into whether Gov. Sarah Palin overstepped her authority is well within the scope of the legislature’s investigatory power. Steven Branchflower, the independent investigator conducting the inquiry, plans to release a report on his findings by October 10.

Meanwhile, Walt Monegan, Palin’s former Public Safety Commissioner whose questionable dismissal sparked the probe, has made it public that he has e-mails proving he was not a maverick within the Palin administration. “I’m a good soldier,” Monegan told the Anchorage Daily News.

4. Politicization of Federal Government

On Sept. 29, the Department of Justice inspector general and the Office of Professional Responsibility released a much-anticipated report on the controversial firings of nine U.S. attorneys in 2006. The IG’s investigation found “significant evidence that political partisan considerations were an important factor” in many, though not all, of the dismissals. But the nearly 400-page report—though it chastised those involved for their questionable motives—did not recommend that criminal charges be filed.

Attorney General Michael Mukasey shared his own harsh criticism of the report’s findings, calling the process by which the prosecutors were fired as “haphazard, arbitrary and unprofessional.” In response to the inspector general’s request that a special prosecutor be tapped to continue the investigation, Mukasey called on Connecticut’s acting U.S. Attorney Nora Dannehy.

Among the facts uncovered by the investigation were e-mails that suggest White House lawyers and political aides may have had a hand in the firings. But a deeper probe into this connection by Inspector General Glenn Fine and OPP chief Marshall Jarrett was met with stiff resistance. Among others, former presidential aide Karl Rove and former White House counsel Harriet E. Miers refused to testify. The White House also did not turn over internal documents, and those they did were heavily redacted.

5. Charlie Rangel

Rep. Mark Udall (D-Col.) called for his colleague Rep. Charlie Rangel (D-N.Y.) to step down as chair of the House Ways and Means Committee while under investigation for an olio of ethical violations. Udall, who is running for U.S. Senator in Colorado, told NBC’s “Meet the Press” he thinks “it would be helpful if Charles Rangel steps down.”

It seems Rangel is off the hook for at least one of his improprieties. A conference he attended at the Sandals Grande Antigua Resort & Spa last year was approved by the ethics committee, Rangel’s attorney told The Hill this week. At issue was Rangel’s failure to submit a post-trip report to the committee—a measure put in place to curb lobbyist-funded junkets.