By Jim Cramer, TheStreet

 

What did Goldman Sachs (GS) do to deserve this? That's all I can think of in the second day of President Obama's nuclear strike against companies that invest in anything other than plain-vanilla loans.

 

If you parse the words of Obama's statement Thursday, you come away with two thrusts: Smaller banks will keep us out of trouble and will not need to be bailed out, and what causes a bank to need bailing out is private-equity and hedge fund investing.

 

In other words, Goldman Sachs could cause a bailout because it does the most hedge fund and private-equity investing of any of the publicly traded companies.

 

No wonder Obama picked the same day as Goldman Sachs' conference call. He was talking about Goldman. I wish he had been on the call.

 

"Congratulations, guys, on a good quarter. Let this be the last one, because you made so much money," he might have said. At least everyone wouldn't have had to be punished for Goldman's sin of making too much money.

 

Is that too glib? OK, how about if he was after JPMorgan Chase (JPM) because it has a huge deposit base and it invests alongside its partners? Well, the reason it has such a huge deposit base is that the government asked the company to buy Washington Mutual, a bank that was too big to fail that forced the government to take it over and give it to JPM, which is exactly what happened, because JPM sure didn't buy the "real" Washington Mutual. It isn't that stupid.

 

So how about this one for irony: A bank that almost brought the whole system down because of reckless mortgage lending, because it did no hedge fund or private-equity investing, gets bought by a prudent bank that does do hedge fund and private-equity investing. If Treasury had decided to let Washington Mutual die instead of Lehman, would we be saying now that banks have to do private-equity and proprietary trading because look what risky mortgage lending did?

 

Bing: More on Goldman Sachs

OK, well, how about Bear Stearns? What got Bear crushed? Faulty mortgage bonds that it pushed that flowed back because they went down in value? The company had to borrow to finance that inventory. Not prop trading. Not hedge funds. JPMorgan saved the government's butt then, too.

 

Or how about Bank of America (BAC)? Until the Merrill deal, Ken Lewis had decided to get out of investment banking because he didn't like the risks and the losses. But then Merrill gets in trouble, the stock goes down and he wants to buy. He discovers, alas, big mortgage losses, and he wants to back out. The government, however, won't let him. It wants the investment banking and the prop trading under one deposit institution's roof. Bank of America saves the day.

 

So, now, here are the three biggest banks that are affected: Goldman Sachs, which caused us no trouble, got it right and doesn't need Federal Deposit Insurance Corp. protection; JPMorgan, which saved the government in Washington Mutual and Bear Stearns; and Bank of America, which wanted to get out of the deal that gave it all of that exposure to the investments Obama is trying to stop it from doing.

 

This crisis was about mortgage lending, bad mortgage lending with no standards and no rules. The banks that went down took on too many bad mortgages. Fannie (FNM) and Freddie (FRE) underwrote too many bad mortgages. Bear and Lehman bought back too many bad mortgage bonds using too much leverage. Washington Mutual issued too many bad mortgages.

 

Wachovia, which also had a run on the bank, issued too many bad mortgages. GMAC, which needed a huge bailout, issued too many bad mortgages. AIG (AIG) insured too many bad mortgage portfolios.

 

Mortgages, mortgages, mortgages. Now, if we had regulated the mortgage business instead of encouraging recklessness through aggressive leveraging by Fannie and Freddie, if we had regulated AIG like the bank that it was instead of state by state, if we had forced Lehman and Bear to reveal what their mortgage portfolios were, if we had forced GMAC to stick with auto lending, like Ford Motor Credit, a unit of Ford (F), and we had cracked down on the no-doc lenders by insisting on documentation, money down and, yes, a passport -- they want that now -- then we would not have had to listen to this nonsense and face the losses that are going to occur if Obama gets his way.

 

His stunning lack of sophistication and Paul Volcker's total cluelessness -- there, I said it -- about what went wrong astound me.

 

Now, you might say, wait, didn't Goldman Sachs go down and need federal help? And Morgan Stanley (MS)? Yes, but that was because it was so easy to take out credit default swaps and make a run on the bank at the same time -- again, a diagnosis that requires you to have much more sophistication than Volcker has.

 

That's why Barney Frank wanted to have so much transparency in his now-no-doubt scuttled bill, because we would find out who was making these reckless bets, we would see the trades and we could go after them. With Frank's legislation, Lehman would have had to disclose its portfolio so we would know not to fund it. In Barney Frank's world there is no more reckless mortgage lending, even if some of his actions before did allow Fannie and Freddie to get way too aggressive.

 

It still all comes back to what Goldman Sachs did. Goldman is a small company in New York City without a broad nationwide deposit base that made a lot of money and didn't get in trouble but is easily identified as the enemy. It is, simply, the perfect scapegoat for a president in bad need of a scapegoat.

 

The whole thing is shameful.

 

I know what happens when you write this stuff. You get targeted. That happened last year. I lived to tell about it.

 

Here we go again.

 

Easy come, easy go.

 

At the time of publication, Cramer was long Bank of America, JPMorgan Chase and Goldman Sachs.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

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