Peter1469
04-14-2016, 03:53 PM
Why the Goldman Sachs settlement is a $5B sham (https://newrepublic.com/article/132628/goldman-sachs-settlement-5-billion-sham)
Goldman Sachs admitted to criminal acts and they got off with a $5B settlement. But much of that settlement can be written off on its taxes. Also a lot of that payout will be with other people's money. It is complicated so read the article.
The Justice Department announcement (https://www.justice.gov/opa/pr/goldman-sachs-agrees-pay-more-5-billion-connection-its-sale-residential-mortgage-backed) in the Goldman case states that between 2005 and 2007, the investment bank marketed and sold mortgage-backed securities to investors that were of lower quality than promised. As a result, Goldman will pay a $2.385 billion civil penalty to the Justice Department, $875 million resolving claims from other state and federal agencies, and $1.8 billion in so-called “consumer relief” measures, like forgiving principal on loans and providing financing for affordable housing. That’s where the much-touted $5 billion figure comes from.
In The New York Times, Nathaniel Popper took a careful look (http://www.nytimes.com/2016/04/12/business/dealbook/goldman-sachs-to-pay-5-1-billion-in-mortgage-settlement.html) at the consumer relief provisions, finding that Goldman Sachs could pay up to $1 billion less than advertised, because the company gets extra credit for spending in certain hard-hit communities or for meeting its obligations within the first six months. I appreciate Popper’s precision, but it’s unnecessary. None of this consumer relief represents a penalty on Goldman at all.
That’s because Goldman Sachs doesn’t own any of the loans it’ll be modifying. They were sold to investors years ago. Goldman will quite literally pay that fine with someone else’s money; in fact, the money comes from the very investors Goldman victimized, by selling them toxic securities under false pretenses.
So what about the consumer relief that goes toward financing affordable housing and community reinvestment? This involves making loans, a moneymaking activity for banks (indeed, their primary function). Getting banks to lend in poor communities, which they often neglect, is laudable in some sense. But it’s hardly a penalty for Goldman Sachs. I have described this in the past as akin to sentencing a bank robber to opening a lemonade stand.
Goldman Sachs admitted to criminal acts and they got off with a $5B settlement. But much of that settlement can be written off on its taxes. Also a lot of that payout will be with other people's money. It is complicated so read the article.
The Justice Department announcement (https://www.justice.gov/opa/pr/goldman-sachs-agrees-pay-more-5-billion-connection-its-sale-residential-mortgage-backed) in the Goldman case states that between 2005 and 2007, the investment bank marketed and sold mortgage-backed securities to investors that were of lower quality than promised. As a result, Goldman will pay a $2.385 billion civil penalty to the Justice Department, $875 million resolving claims from other state and federal agencies, and $1.8 billion in so-called “consumer relief” measures, like forgiving principal on loans and providing financing for affordable housing. That’s where the much-touted $5 billion figure comes from.
In The New York Times, Nathaniel Popper took a careful look (http://www.nytimes.com/2016/04/12/business/dealbook/goldman-sachs-to-pay-5-1-billion-in-mortgage-settlement.html) at the consumer relief provisions, finding that Goldman Sachs could pay up to $1 billion less than advertised, because the company gets extra credit for spending in certain hard-hit communities or for meeting its obligations within the first six months. I appreciate Popper’s precision, but it’s unnecessary. None of this consumer relief represents a penalty on Goldman at all.
That’s because Goldman Sachs doesn’t own any of the loans it’ll be modifying. They were sold to investors years ago. Goldman will quite literally pay that fine with someone else’s money; in fact, the money comes from the very investors Goldman victimized, by selling them toxic securities under false pretenses.
So what about the consumer relief that goes toward financing affordable housing and community reinvestment? This involves making loans, a moneymaking activity for banks (indeed, their primary function). Getting banks to lend in poor communities, which they often neglect, is laudable in some sense. But it’s hardly a penalty for Goldman Sachs. I have described this in the past as akin to sentencing a bank robber to opening a lemonade stand.