This is a rush transcript of "Special Report With Brit Hume" from December 9, 2008. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

GOV. ROD BLAGOJEVICH, D-ILL.: I don't care whether you tape me privately or publicly, I'm going to tell you that whatever I say is always lawful, and the things I'm interested in doing are always lawful.

PATRICK FITZGERALD, U.S. ATTORNEY: The most appalling conduct Governor Blagojevich engaged in according to the complaint file unsealed today is that he attempted to sell the Senate seat, the Senate seat he had the sole right under Illinois to appoint to replace President-elect Obama.

The governor's own words describing the Senate seat, quote, "It's a bleeping valuable thing. You just don't give it away for nothing."

(END VIDEO CLIP)

BRIT HUME, HOST: What a difference a day makes — declaring his innocence on Monday afternoon, led away from his home in handcuffs, indicted on Tuesday morning. We're talking of course about Rod Blagojevich, the Democratic governor of Illinois.

Some thoughts on this case now from Fred Barnes, the executive editor of The Weekly Standard; Mara Liasson, national political correspondent of National Public Radio, and Mort Kondracke, executive editor of Roll Call — FOX News contributors all.

Well, Mort, this is a bit of a jolting reminder of the political atmosphere from which Barack Obama emerged. And I suppose it's fair to say that while certainly President-elect Obama is not named, except in passing in this indictment, he is certainly not charged with any wrongdoing, he and he Blagojevich certainly were political allies.

What to make of all of this?

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: Yes, they were both part of the Democratic machine, and Obama endorsed Blagojevich for reelection. They are certainly not enemies, and, you know —

But, look, Obama has been elected president of the United States. There is no direct tie in this scandal to him. And so he, you know, he is going to go on to the White House.

The whole thing is — I mean, Rod Blagojevich comes off as a total sociopath. He was arrested like a mafia don, and he acts like one. This is about as scuzzy behavior as you could possibly imagine.

What is interesting here is that this is an opportunity for the Republicans to come back, because you've got this candidate, number five, who is presumably one of the people who was in line to get the Obama seat, may be indicted.

HUME: They find in the indictment is a candidate number five. We don't know who that is.

KONDRACKE: We don't know who it is, but if he is one of the leading candidates, and he did, in fact, try to bribe Blagojevich into giving him the nomination, then he may be out of it.

So, say Mark Kerr, the congressman from the north shore of Chicago, a Republican, were to run in a special election, which it looks like there is, and if there is a nasty Democratic primary ahead of time, that seat could go Republican.

And if somebody could persuade Patrick Fitzgerald to run for governor in 2010, you could have a Republican resurgence in Illinois.

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO: Look, this really was quite something. I guess the best thing for Barack Obama in this — No. 1, of course he isn't named or connected to any of these activities.

But he actually was exonerated in some form because Rod Blagojevich complained, with expletives deleted, called him an expletive deleted, and then went on to say that the candidate that he believes Obama wants won't do anything for him.

I think he says "All they'll give me is appreciation. Expletive delete them."

HUME: F them.

LIASSON: Yes, F them, we assume.

Look, I think this is pretty stunning. I agree with Mort, it could be an opportunity for Republicans, which would be the ultimate of political ironies, to have his own seat, Obama's seat filled by a Republican if it comes to.

Dick Durbin is calling for a special election. The lieutenant governor is asking for Blagojevich to step aside, which means either he, Pat Quinn, would name someone, or call for a special election.

I think it's really extraordinary — he's a Democrat, yes.

HUME: Fred?

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: What a great case. It is just breathtaking, and so much fun! You got the guy saying you can tape anything you want of me. It reminds you of Gary Hart saying "I don't care if you tail me, I'm not doing anything wrong!"

(CROSSTALK)

BARNES: Who was that?

HUME: Donna Rice.

BARNES: I know her name, but there was a boat they were on. What was the name of that?

LIASSON: Monkey business!

BARNES: Monkey Business, there you go.

Anyway, I don't know about Republicans. They have had a pretty good week-Saxby Chambliss win, then they win this over Bill Jefferson in New Orleans' House seat, and not this.

And it's not quite — there is a corruption issue with Charlie Rangel, the Democratic chairman of the House Ways and Means committee in a lot of trouble as well. It's not quite a critical mass yet the way Republicans created for themselves a critical mass in 2006, in particular by so many of the House members getting in trouble.

But, you know, this is such a juicy case. It is so interesting that people will be talking about this for a long time.

It reminded me — I don't know if you like football analogies, but remember the one — Brit you've heard this, and, Mort, you probably have too — and that is when there is offensive holding and somebody is called for it and there is a penalty, and it is supposed to be the assumption on the next play that everybody can hold because the ref won't call two in a role.

And so Blagojevich must have figured the former governor is in jail, so and I can do whatever I want. They're not going to go after me.

But he was caught in so many — he has been implicated.

HUME: Over the sale of Wrigley Field, which the company owns.

BARNES: He tried to get fired the chief editorial writer for The Tribune who was criticizing him.

I mean, what an amazing guy. "Sociopath" is the right word, Mort.

LIASSON: There should be a governor's wing in the state penitentiary. It reminds me of that joke where the two guys are in line in the prison chow line, and one turns to the other and says "The food was better in here when you were governor." It's really extraordinary.

KONDRACKE: I'm from Illinois, and I covered Springfield, and the first governor that I covered was Otto Kerner. And, guess what, Otto Kerner went to jail!

(CROSSTALK)

HUME: Congress looks at what went wrong with Fannie and Freddie. We'll talk about what they said after this break. Stay tuned.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

REP. HENRY WAXMAN, D-CALIF., HOUSE OVERSIGHT COMMITTEE CHAIRMAN: Fannie Mae and Freddie Mac knew what they were doing. Their own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage market. But these warnings were ignored.

RICHARD SYRON, FORMER FREDDIE MAC CEO: There is no question that Freddie Mac has incurred losses associated with non-traditional loans. But it is important to remember that Freddie and its sister institution, Fannie, did not create the subprime market.

(END VIDEO CLIP)

HUME: Well, maybe not, but the evidence seems pretty clear that they were major implementers of, indeed, facilitators of that market, because Fannie and Freddie, with huge sums of money, were ready to buy up and take off the books of the banks that made them a lot of the subprime loans that eventually proved their undoing.

This hearing that was held today, from which you just heard slices, was postponed because the Democrats didn't want to hold it until after the election. Now it has been held, and it should be said that Henry Waxman was as tough on these guys who are associated with the Democratic Party, the Fannie and Freddie people, as he has been on Republicans.

What about it, Fred?

BARNES: He was tough. I give him credit for that. It was a pretty good hearing.

I mean these lame responses by the heads of — former heads of Fannie Mae and Freddie Mac are ridiculous, you know. "We didn't create bad loans." I mean, nobody said they created subprime loans what. What they did was facilitated them, sponsored them, bought them despite all these flags that were raised by their own people and the press.

Let me read you something from 1999, when they first announced- this Fannie Mae-first announced we will buy some of these subprime loans in a pilot program. And in the very New York Times story said "But the government subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loans industry in 1980s."

This is 1999, and these people did it.

Now they say - and I forget which one it was, maybe you will remember — but one of the guys said we had no idea the housing market might turn down. Everyone knew there was a housing bubble, that it couldn't go on, that something would happen.

I mean, this was a good hearing, and the responses of the Fannie Mae and Freddie Mac people should have been, hey, we screwed up, we're sorry. But instead, they offered a lame defense.

LIASSON: By definition they couldn't have created the subprime mortgage market because they are the secondary mortgage market. That's not what they do by definition.

Look, Freddie and Fannie will never, ever be the same again. They are not going to be a taxpayer-guaranteed institution that can pay its executives, you know, $10 million a year.

HUME: Frank Raines, and I know that you all will be heartbroken to hear that he made $90 million. But he took a haircut. They cut him back to only $50 million, poor fellow.

LIASSON: The people who run this kind of entity should be government employees. And that's what they should make.

KONDRACKE: It should be totally private or totally government, one or the other. It shouldn't be this in between kind of thing, where you have stockholder pressure and you're trying to make a profit and all the rest, and you're playing around with it.

There is one thing missing — I agree that Henry Waxman was tough on these guys, but he was not tough on the enablers of this guy, namely, members of Congress of his own party — Barney Frank, Chris Dodd, the people who — and some Republicans — who resisted regulation, which the Bush administration, to its credit, wanted to put into effect on the GSEs.

Freddie and Fannie spent something like $11.5 million on lobbyists, 52 different lobbyists were hired and order to resist regulation, which the Bush administration was seeking.

Now, I'd like to see another hearing where Barney Frank and Chris Dodd come in and explain themselves. Why did you resist this?

One said if it ain't broke, don't fix it. Well, I say we saw today that Fannie Mae and Freddie Mac were broke, broken, and it should have been fixed. And Congress resisted fixing it.

BARNES: It's clear that this model doesn't work, and I think this is what Mort was getting at, that when you have conflicting obligations is-I think these guys have said — one is to spur affordable housing. So you buy up all these subprime loans.

And the other is to make money for your stockholders, and so you buy up a lot more of these bad loans. And then it blows up, and the public has to pay then.

HUME: It's one of the deals where the money is really good as long as the scheme continues and the bubble continues. But it can't survive a downturn, as that story suggests.

BARNES: And who pays in the end? It's not the stockholders. They lose too, but the public to step in with the bailout money.

Copy: Content and Programming Copyright 2008 FOX News Network, LLC. ALL RIGHTS RESERVED. Transcription Copyright 2008 ASC LLC (www.ascllc.net), which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon Fox News Network, LLC'S and ASC LLC's copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.