Nov. 24 (Bloomberg) -- The worst thing that’s happened to Goldman Sachs Group Inc. since the financial crisis started was the acquittal of former Bear Stearns Cos. hedge-fund managers Ralph Cioffi and Matthew Tannin on Nov. 11.

They were found not guilty of misleading investors who lost $1.6 billion, a verdict that deprived the public of poster boys for economic woes while increasing pressure on the government to do something, anything.

Unable to find a fall guy for the financial crisis and recession, the American people and Congress will take out their frustrations on institutions, starting with Goldman.

The firm would have collapsed in September 2008 without a government rescue that reached $50 billion. Still, it paid employees $10.9 billion last year and has already set aside $16.7 billion for the three quarters completed this year.

Cioffi and Tannin, arrested in June 2008, weren’t the first individuals the U.S. government tried to blame for the onset of the subprime crisis. In March 2008, Congress summoned Countrywide Financial Corp. Chief Executive Officer Angelo Mozilo and former chief executives Charles Prince of Citigroup Inc. and Stan O’Neal of Merrill Lynch & Co. to Capitol Hill to explain their pay packages. Perhaps lawmakers were hoping to find a smoking gun.

The witnesses were unfazed, because they had done nothing illegal then or after.

Bear Stearns collapsed the following week. Cioffi and Tannin were arrested three months later.

AIG Challenge

Yes, there may yet be some convictions in individual mortgage-fraud cases -- maybe.

Yes, the government may be investigating Joseph Cassano, the former head of the derivatives unit of American International Group Inc., which received a $185 billion government rescue. But if the government couldn’t convict Cioffi and Tannin with something as clear as e-mails, one wonders how it will succeed in prosecuting something as opaque as derivatives at AIG -- if a crime was even committed.

Moreover, AIG said it stopped insuring deals that used subprime mortgages as collateral in December 2005. AIG was “not happy with underwriting standards” and “uncomfortable about what’s going on in the new vintages that are being developed,” Cassano said on the third-quarter 2007 earnings call.

And don’t forget that Cassano’s infamous “money-good” remark turned out to be true.

Describing AIG’S credit derivatives, Cassano told investors in a December 2007 Webcast, “Our fundamental analysis says this is a money-good asset. We would not be doing the shareholders any benefit by exiting this right now and taking that loss.”

Made Good

When AIG was on the verge of collapse in September 2008, the Federal Reserve forced the company to pay 100 cents on the dollar on its credit-default swaps, not the 60 cents AIG was offering. So it was money-good, after all.

There are no “perps” responsible for the financial market collapse and recession, for at least two reasons.

First, there is plenty of blame to go around. Americans took out mortgages they couldn’t afford. Congress encouraged homeownership and deregulated the financial-services industry, and regulators failed to detect systemic risk. Everyone participated; it wasn’t illegal to get mortgages, or package and sell them, or insure them with credit-default swaps.

Second, people resent the rich more than they want vengeance on villains -- and no one is richer in the public eye than Goldman Sachs, still benefiting in subtle ways from government support.

Institutional Blame

So Congress and the public will set their sights on institutions, dismantling them if necessary -- even if they’ve done nothing wrong. Something similar has happened before.

In June 2002, Arthur Andersen, the auditor of Enron Corp., was convicted of obstruction of justice. The verdict effectively put the company out of business, no matter that it was unanimously overturned three years later by the U.S. Supreme Court.

It’s starting to happen again. A week after the Bear Stearns acquittals, the House Financial Services Committee, considering legislation to overhaul Wall Street rules, voted 38 to 29 to approve an amendment that would let regulators dismantle a firm, limit mergers and acquisitions and force an end to activities deemed systemically risky.

Fast forward to June 2010, when the U.S. midterm congressional elections are revving up. One can imagine politicians distinguishing themselves by how far they are from Goldman Sachs, cognizant as they are of the way Democrats in 2002 and 2004 ran ads highlighting the friendship between President George W. Bush and Enron’s longtime CEO, Kenneth Lay.

History may not repeat itself, but it often rhymes.

Wall Street Values

Decades ago, the Senate Banking Committee’s investigation into the causes of the Wall Street crash of 1929 resulted in the Glass-Steagall Act of 1933, separating commercial and investment banking, and the creation of the Securities and Exchange Commission. The work of the so-called Pecora Commission, named for its chief counsel, Ferdinand Pecora, uncovered how the values on Wall Street in the 1920s seemed utterly incongruous to the public in the aftermath of The Crash.

Likewise, Goldman’s “competence” will come to be seen as a consequence of privileged access to market information and a willingness to use it without sharing this knowledge with their customer base. It may all be legal, but in public hearings it will be seen as bad form.

The trial of Cioffi and Tannin is over. There may be no others and if there are, they probably won’t succeed. To borrow from someone who saw it coming, Congress and the public will not be satisfied until they get their pound of flesh.

(Brendan Moynihan is an editor-at-large at Bloomberg News. The opinions expressed are his own.)

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To contact the writer of this column: Brendan Moynihan in Brentwood at bmoynihan@bloomberg.net

Last Updated: November 23, 2009 21:00 EST