The reason why he used his power so corruptly was to cover up his own incompetence so that he could keep his reputation. He knew he had no idea how to handle Voldemort's return and if he agreed that he was alive he would have to come up with a solution for that problem. And he knew that since he had no solution that the public would turn on him even more and move onto the next guy who might have a solution. The beautiful irony in all of this is Fudge was fired pretty quickly after this.