Washington has found its scapegoat in Goldman 

The hearings last week by the Senate Permanent Subcommittee on Investigations into The Goldman Sachs Group Inc.’s behavior during the mortgage bubble was a show trial designed to deflect responsibility for the bubble and its aftermath from Washington.

The hearings, ostensibly, were to look into the firm’s involvement in a deal in which Goldman Sachs is accused of helping a client, hedge fund Paulson & Co. Inc., assemble a synthetic collateralized debt obligation that referenced risky mortgage assets. The hedge fund then placed a short bet that the mortgage values would fall.

But the hearings soon degenerated into criticism of Goldman for deciding in 2007 that the mortgage bubble had grown too big, too fast and was likely to burst, and then taking steps to profit from the expected collapse by shorting mortgage- backed securities for its own account.

One has to ask if the committee members would have been happier if Goldman had been long mortgage-backed securities when the bubble burst and had gone belly up like Lehman Brothers Holdings Inc.

If Goldman Sachs had similarly failed, the government bailout would have been more expensive and might not have succeeded.

The real purpose of the hearing was to identify yet another scapegoat for the financial crisis and to reignite public anger at Wall Street, which had declined to a simmer in the aftermath of the rancorous debate over the health care reform bill.

If Sen. Carl Levin, D-Mich., and others in Congress say “Wall Street greed” often enough, the public might forget the roles played by members of Congress, the Federal Reserve Board, Fannie Mae and Freddie Mac, and others.

No one will point fingers at Rep. Barney Frank, D-Mass., who fought off efforts to rein in Fannie and Freddie as they helped finance thousands of subprime mortgages.

No one will ask if the efforts were blocked because 29 members of both parties received more than $40,000 each in campaign contributions from Fannie and Freddie between 1989 and 2009.

No one will ask why regulators failed to identify and halt the fraudulent practices of mortgage brokers and many homebuyers.

No one will ask about the enormous fiscal stimulus from deficit spending in which both parties were complicit and which helped spark the real estate boom.

No one will question the roles of Federal Reserve chairmen Alan Greenspan and Ben Bernanke in keeping rates low and money too easily obtained, facilitating the boom.

Yes, the behavior of Goldman Sachs bordered on the unethical, perhaps crossing over at times. But so, too, did members of Congress.

But because the members of the Financial Crisis Inquiry Commission, which is looking into the causes of the crisis, were appointed by the party leaders in the House and Senate, they most likely will protect their political masters.

Even if the commission finds fault with Congress, the Fed and other federal agencies, its report will come after the financial-reform bill has been passed and after the midterm elections, so no one will care.

And many in the public will go on believing that it was all Wall Street’s fault and that Wall Street can’t be trusted with their money.