The New York Times has an excellent bit of insta-history this morning, scoring an interview with Treasury Secretary Paulson to find out why he let Lehman Brothers fail. Paulson says he had no choice, that Lehman’s debts were more than its capital, and he and the Federal Reserve didn’t have the legal authority to save it.

But the Times, as part of its top-notch “Reckoning” series led by columnist Joe Nocera, is tough on Paulson, showing that he never raised such arguments with either Lehman or the companies who were considering buying it but needed a government backstop like Bear Stearns got in March.

But in contrast with Mr. Paulson’s perspective, other government officials and financial executives suggest that Treasury’s epic rescue efforts have evolved as chaotically as the crisis itself. Especially in the past month, as the financial system teetered on the abyss, questions have been raised about the government’s — and Mr. Paulson’s — decisions. Executives on Wall Street and officials in European financial capitals have criticized Mr. Paulson and Mr. Bernanke for allowing Lehman to fail, an event that sent shock waves through the banking system, turning a financial tremor into a tsunami.

The papers justifiably pile on the credit-ratings agencies today after a congressional hearing unearthed incriminating emails about their business practices. But the Times has the best angle, leading with the news that two former high-ranking executives at Moody’s and Standard & Poor’s testified that conflicts of interest—they are paid by the firms whose bonds they rate—caused their firms’ abysmal performances.

Here’s the Journal:

At S&P, one employee wrote in an instant-message exchange: “btw-that deal is ridiculous.” A colleague replied: “it could be structured by cows and we would rate it.”

The credit-ratings industry, which is essentially given a quasi-governmental role blessed by Congress, needs to be blown up and rebuilt entirely—or replaced with something else.

The WSJ scoops that the Bush Administration is considering a $40 billion bailout for homeowners.

At a Senate Banking Committee hearing Thursday, Federal Deposit Insurance Corp. Chairman Sheila Bair is expected to suggest the government give banks a financial incentive to turn troubled loans into more-affordable mortgages, according to a person familiar with her testimony. Under the proposal, the government would share in any future losses on the new loans with lenders.

This is kind of a no-brainer, right? After I’ve-lost-count-of-how-many trillions for Wall Street and the banks, $40 billion to help keep people in their homes—and address the root of the whole crisis—looks like loose change.

The Journal posts a nice little dispatch from the disrupted mortgage bankers annual meeting.

On Tuesday, several members of the group interrupted Karl Rove during a panel discussion with a political focus. Some shouted from the audience, and one woman went onstage and attempted to handcuff Mr. Rove. All were escorted from the room.

A day earlier, Code Pink co-founder Medea Benjamin walked onstage during a panel discussion with the new chief executives of Fannie Mae and Freddie Mac and demanded a moratorium on foreclosures. Meanwhile, outside the Moscone West Convention Center here, another group of people picketed as convention attendees entered.

For an industry group that focuses on mortgage rates, home sales and refinancing, the public outcry provided an emotional charge to the mortgage bankers’ normally staid annual convention. Some felt the need to defend their industry. “I’m darn proud to be a mortgage banker,” said John Courson, the trade group’s chief operating officer. “We put people in houses, we invest in communities, and we know it has to be done right.”

But David Kittle, the next chairman of the MBA, conceded the industry had been less than rigorous in the training of loan officers, and said the group needs to rebuild its reputation in 2009.

The Washington Post is good in conveying the magnitude of the problems facing the labor market, with layoffs hitting their stride.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.