
Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims - mashgin
http://www.npr.org/sections/thetwo-way/2016/01/14/463107541/goldman-sachs-will-pay-5-billion-to-settle-financial-crisis-claims
======
suprgeek
So the company that was one of lead bad actors in a global crisis that wiped
out lots of little folks gets -

No execs (or anybody else) go to Jail

Continues to do business as usual

Pays a small fraction of its profits in fines (but gets to keep the multi-
billions of tax-payer money under various govt. programs)

Admits to no wrong doing

Basically a speeding-ticket that gets dismissed when you pony up the cash
after being caught drunk driving with dead body stuck on your fender.

~~~
rayiner
My dad was heavily invested in NASDAQ-listed stocks and lost half his 401k in
the 2000 crash. Who on Sand Hill Road should be in prison right now?

~~~
duncanawoods
The 2000 IPO process was pretty much a pump and dump for both the VCs and IBs.
There were legal consequences for bad investment advice and misuse of
shareholder money.

According to wikipedia, Citi and Merrill were both fined for this. I don't
know who was held legally accountable for misusing shareholder money but there
was the worldcom fraud which ended in jail sentences.

------
ksar
As a quick refresher, these guys sold CDOs that they knew weren't priced
correctly, obfuscated the mispricing, and then profited on short positions
against the securities. Took 7 years to settle for being straight up crooks.
Still the Wild West out there.

~~~
tim333
There should really be some way to punish the individuals responsible, even
just a fine comparable to the bonuses they made, rather than just having their
employer pay compensation while those responsible continue to get richer.

~~~
forgetsusername
> _There should really be some way to punish the individuals responsible_

Honest question: do reasonable really look at the The Great Recession and
think that there are "individuals" wholly responsible for what happened?

~~~
mtgx
I think the problem is not "we can't find anyone who did wrong here", but
"there are so many who cheated people that we wouldn't know where to start, or
we'd have to arrest thousands - so we might as well do nothing about it".

Regardless of punishing those guilty or not (which I think they should be),
it's absolutely criminal that virtually nothing has changed in how these
companies operate, and that the "too big to fail" companies continue to remain
too big to fail. The next time these banks crash - and they will crash - the
taxpayers will have to bail them out in the _trillions_ of dollars.

~~~
forgetsusername
> _it 's absolutely criminal that virtually nothing has changed in how these
> companies operate_

Except that this is simply not true if you've been paying attention beyond the
populist headlines.

~~~
enraged_camel
Can you give some concrete examples of what has changed in their modus
operandi? Preferably with citations,but I won't even hold you to that.

------
qaq
OK this would not be popular opinion here, but it's a problem of people that
bought those products and not GS. They went to same biz schools and were paid
millions to run their funds. It's their job to do due diligence on the deals
they make with GS or any other counterparty.

~~~
gadders
It used to be in the 90's/2000's in the UK that all was fair in love and war
between banks - they are the big boys and are supposed to know what they are
doing.

If you rip off "widows and orphans" though you will get punished severely.

------
rl3
While this isn't trivial as far as settlement dollar figures are concerned, I
can't help but think it represents a small fraction of Goldman's ill-gotten
gains.

They've had eight years to literally make bank on the proceeds.

------
jrcii
I guess I'm cynical but I'm worried that Goldman's takeaway here is to make
the financial products, transactions, and their position more complex/opaque
in the future.

~~~
kartan
That's not being cynical. When a fine is less than your profits for breaking
the law you are into a sound business model.

Suppose that when you caught a thief the sentence were to return 60% of
whatever he has stolen, nothing else. The result is quite obvious. Even if it
where 100%, it will still be a good business as you will get away with all the
money when you are not caught.

Lloyd said it quite clear "We are pleased to have reached an agreement in
principle to resolve these matters,". Of course they are pleased! We are not.

------
e12e
So a quick google search turned up this:

"Overall, Goldman Sachs received a $12.9 billion payout from the government's
bailout of AIG, which was at one time the world's largest insurance company."
[1]

Now, these might be related, but [not] identical - or indeed not connected -
but on the face of it it _seems_ rather outrageous... perhaps someone who's a
bit more up on the details can comment?

[1]
[http://usatoday30.usatoday.com/money/industries/banking/2010...](http://usatoday30.usatoday.com/money/industries/banking/2010-07-24-goldman-
bailout-cash_N.htm)

~~~
melling
When the government bailed out AIG, everyone who was owed money by AIG got
paid. Is there more to the story?

We seem to revisit the crisis on HN. Someone should do a write up. We seem to
rehash a lot of this. Basically , history just repeating itself. TARP, for
example, being a loan:

[https://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Progra...](https://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Program)

~~~
e12e
From the USA Today article above, along with this story here, it would seem
that government bailed out AIG, which benefited Goldman and a lot of financial
institutions that really should have been in a position to "know better", and
be prepared to take the loss themselves, while Goldman will happily make sure
small home-owners go bankrupt. Or put another way, government pays Goldman 12
Billion for not knowing their business, and Goldman grudgingly passes on 2
billion in consumer relief.

That's a pretty sweet deal for Goldman?

Does remind me to keep "Swimming With Sharks" on my reading list:

[http://www.amazon.com/Swimming-Sharks-Journey-World-
Bankers-...](http://www.amazon.com/Swimming-Sharks-Journey-World-Bankers-
ebook/dp/B010KNF704/ref=sr_1_1?ie=UTF8&qid=1452839853&sr=8-1&keywords=swimming+with+sharks)

(I assume the Book has more along the lines of what's in this interview/promo-
piece):

[http://www.theguardian.com/business/2015/sep/30/how-the-
bank...](http://www.theguardian.com/business/2015/sep/30/how-the-banks-
ignored-lessons-of-crash)

~~~
mikeyouse
The controversy at the time was that Goldman was given 100 cents on the dollar
in the AIG bailout.. They should have had a significant haircut but were made
completely whole with taxpayer money. Ugly all around.

------
username223
For context, that's about 3 months' profits. Not nothing, but not much
compared to the damage they caused.

~~~
samfisher83
They made 8 bil in 2014 fiscal year. That's 5/8 of their profit. It might not
make up for what they did, but its a big fine.

~~~
tamana
Unless punishment sets you to negative net profit, it is not a punishment

------
ttctciyf
Relevant wikipedia link:
[https://en.wikipedia.org/wiki/Regulatory_capture](https://en.wikipedia.org/wiki/Regulatory_capture)

Edit to add:

For a specific Goldman Sachs context, see for example:
[http://www.theguardian.com/business/2014/sep/26/us-
regulator...](http://www.theguardian.com/business/2014/sep/26/us-regulator-
ray-rice-tapes-finance-goldman-sachs)

Maybe there's some reason I missed that this didn't make a bigger or longer-
lasting splash.

------
AmirS2
The $1.8 billion in consumer relief is not actually a penalty, since most of
it is money that has already been lost, and is only being recognised now under
the pretence of it being a penalty.

> "The consumer relief will be in the form of principal forgiveness for
> underwater homeowners and distressed borrowers; financing for construction,
> rehabilitation and preservation of affordable housing; and support for debt
> restructuring, foreclosure prevention and housing quality improvement
> programs, as well as land banks."

The principal forgiveness had to happen anyway in the normal course of
business, one way or another. If underwater homeowners and distressed
borrowers owe you a billion dollars, that does not mean that those mortgages
and loans are worth a billion dollars in reality. At best you can
realistically hope to eventually be repaid 60% of that (to pick an arbitrary
number), given that these are _distressed_ borrowers we're talking about. So
writing down those assets in your books to e.g. $600 million dollars does NOT
constitute a penalty or consumer relief of $400 million, since your assets
were not really worth a billion to begin with and probably haven't been for
years.

Same for the rest of the "relief", for example foreclosure prevention is
almost always a net positive for the lender. Finding a way for the owner to
stay in the house, look after it, and keep repaying whatever they can afford,
will usually recoup more money for the bank than a distressed sale at auction
(how foreclosed properties are usually sold).

Principal relief for homeowners who are above water and up to date with
mortgage payments, now that _would_ be an actual penalty

------
edelans
Am I the only one finding it odd that the company who has triggered a global
financial crisis is paying a fine to the US ???? The damage spread far outside
US borders ! I would rather see this fine paid to a global organisazion, like
the IMF
([https://www.imf.org/external/np/exr/facts/finfac.htm](https://www.imf.org/external/np/exr/facts/finfac.htm)).

~~~
Lazare
> the company who has triggered a global financial crisis

I'm hardly a defender of Goldman, but that's a bizarre characterization.

What do you think Goldman did to cause RBS's failures, exactly?

~~~
nl
RBS bought subprime mortgage backed securities - the same ones that were
(mostly) created by Goldman[1].

RBS (along with most buyers) didn't realize that the AAA-rated securities they
bought were actually subprime-backed (because of completely stupid rules by
the ratings agencies, which Goldman exploited)

When people suddenly discovered what a disaster these were, RBS wrote down
£5.9bn, and was forced to seek additional capital[2].

RBS was responsible for heir own fate of course. But Goldman sure made money
out of it.

[1] [http://www.telegraph.co.uk/finance/recession/5025115/RBS-
tra...](http://www.telegraph.co.uk/finance/recession/5025115/RBS-traders-hid-
toxic-debt.html)

[2]
[http://news.bbc.co.uk/2/hi/business/7096845.stm](http://news.bbc.co.uk/2/hi/business/7096845.stm)

~~~
Lazare
Goldman did not invent CDOs, and they did not create the CDOs RBS purchased.
(Also, what actually doomed RBS was overpaying for ABN Amro, but that's
neither here nor there.)

> But Goldman sure made money out of it.

How? Exactly?

~~~
nl
The sold the securities and shorted them at the same time.

------
cookiecaper
>The firm said it will pay a civil monetary penalty of $2.385 billion, a cash
payment of $875 million and $1.8 billion in consumer relief

Where is that $3.26 billion of cash going? I know you're going to say the SEC,
the DOJ, or some other [combinations of] government entity. I get that. But
_then_ where does it go? It seems that people often forget that when this
happens, there's still a human that sees a $3.26 billion uptick in the amount
of money he controls (though it's possibly divided between branches/depts).

What does that guy do with it? Build a (few dozen) new office building(s)?
Hire 10k more employees for the agency that employs him (only 50 of which are
his family and friends collecting 250% of their market rate)? Does he keep it
in a bank account and collect interest on it? Send it into a black hole
somewhere in the Treasury so that it can help pay off "the national debt"?
Spend it on contractors? Bonuses for himself and the other people who helped
"take the bad guys down"? Motorboats? Yachts?

People act like it's just an inherent truth that fined money is better off on
a bureaucrat's desk than a banker's. Is that really real life?

~~~
deciplex
Do you have a better idea? It sounds like you're trying to make a "taxes are
theft" argument against _fines for committing theft_ which is pretty hard to
take seriously.

~~~
cookiecaper
>Do you have a better idea?

I think almost any idea is a better idea than that.

>It sounds like you're trying to make a "taxes are theft" argument against
fines for committing theft which is pretty hard to take seriously.

I'm not making an argument that taxes are theft. I'm really just trying to
illustrate that while there may not be an _institutional_ profit motive for
governmental bureaus, there is a personal and/or professional profit motive
for whoever gets to spend that money. A lot of young people seem to think that
it's always better to have the government providing a service because "they
care about more than just profit" or something similar.

Moving the money between a third-party contractor that provides a service
_bought_ by the government into the actual government itself doesn't
_necessarily_ mean anything good is going to happen. You don't have to look
very far, either into the past or into the map, to see that; in many
countries, the absolute richest people are politicians and bureaucrats.

It's a lot easier to fire a contractor that does a bad job than it is to
replace a government bureau that does a bad job. I think it's important to
convey that bureaucrats can and sometimes do still get a large amount of
money, and that can affect their motives and decisions just as easily as it
can for anyone else. These positions deserve scrutiny and oversight too. The
people running the private sector are not that different from the people
running public services.

~~~
deciplex
> I think almost any idea is a better idea than that.

Okay I'll take that as a "no", then.

Again, this is a fine, not even a tax. Whatever ethical considerations are
bothering you about levying fines for corporate criminal behavior are not
going to be addressed by handing over the fines to some third party instead,
or whatever you're going on about.

Frankly, they could take the money collected from the fine and launch it into
a heliocentric orbit, for all I care, because the primary aim of levying the
fine in the first place i.e. _as a punishment for criminal behavior_ is still
achieved.

------
littletimmy
Can someone express this as a percentage of the claims themselves? The $5B
figure is meaningless without knowing the size of Goldman's loot.

------
jsprogrammer
Let's just go through the docs and bring it all out.

>"We are pleased to have reached an agreement in principle to resolve these
matters," said Lloyd C. Blankfein...

All you really need to know.

------
rdlecler1
Not to mention, low interest rates gave banks 7 years to bolster their balance
sheets. They have as much money as ever. It's really hard to see how Goldman
gets penalized for this under that regime: "We're going to help you make tens
of billions to recover and then we're going to charge you $5B for damages. I
hope you've learned your lesson."

------
chrisbennet
Suppose I buy something(1) and collude with an appraiser(2) to value it much
higher than its actual worth and then get it insured (3). Now suppose the
market discovers the true value of that it and massively devalues it.
Consequently, I collect on the insurance.

Why isn't this insurance fraud?

(1) home loans (2) rating agencies like Moodies (3) AIG

------
yodsanklai
I'd be curious to hear GS employees points of view. We often get "insiders"
comments here on HN, but not so much on this topic.

------
pasbesoin
Financial penalties/settlements: The modern world's indulgences.

I expect a similar amount of change in the underlying behavior.

------
jetskindo
So they are paying back some of the bail out money. Not exactly a fine, and
the individuals responsible are not affected.

------
sitkack
Not enough. 500B would be more accurate.

------
Laaw
I mean, we gave them loans, not free money, right? The American people
profited in a literal sense on the bailout.

~~~
pak
Sure, it was a loan--that no other financial institution could have dared to
make, thereby making the expected interest rate on the open market for such a
loan much higher than whatever accounting tricks are used today to determine
that the government turned a "profit." Furthermore, the loans involved the
government purchasing financial instruments that were basically impossible to
value fairly [1], because much of it was junk at the time, and so the Treasury
probably overpaid for them [2]. Finally, as far as using the money for long-
lasting economic change, the loans were given with basically no strings
attached, so banks that "qualified" for TARP (does anybody seriously believe
that the Treasury selected participants in a neutral, transparent manner?)
could use the money to swallow up smaller institutions for a bargain [3],
basically subsidizing more of the bad behavior that led to the collapse in the
first place.

[1]
[http://web.archive.org/web/20090110184334/http://www.uiowa.e...](http://web.archive.org/web/20090110184334/http://www.uiowa.edu/ifdebook/issues/bailouts/eesa.shtml)

[2]
[http://web.archive.org/web/20090207100935/http://cop.senate....](http://web.archive.org/web/20090207100935/http://cop.senate.gov/documents/cop-020609-report.pdf)

[3]
[http://www.nytimes.com/2009/01/18/business/18bank.html](http://www.nytimes.com/2009/01/18/business/18bank.html)

~~~
hueving
>whatever accounting tricks are used today to determine that the government
turned a "profit."

The government got back more money than it loaned out? Does that qualify as an
accounting trick now?

~~~
pak
Is the fair market value for the interest rate on a loan really that abstract?
This must be why with the simplest rhetorical flourishes, the financial
industry can convince people that their hundreds of millions in lobbying
dollars are well spent on regulation that protects average Americans. An
interest rate has to incorporate size of the loan, expected term of the loan,
and _risk of default_ (recall these were distressed banks), among other
things.

Here's an accounting trick for you. Why don't you give me a $1000 loan for
twenty years, and since you don't know me, the risk of default is, let's say,
pretty high. I'll repay you $1001 in 2036—heck, just to be generous, I'll do
it in inflation-adjusted dollars. When I do that, I will be happy to have you
tell me about the "profit" that you made off of your investment.

~~~
Laaw
No one said or implied any of what you're saying. Did we or did we not get
more money back from the banks than we gave? That was the question, and the
answer was we did.

No one's making value judgements about that, it's just a statement of
undeniably true fact. That is the literal definition of profit, and the US
government made a profit on the loan.

~~~
pak
Look, man, there's a reason this thread is all the way at the bottom of the
page. If you actually think that your "literal definition of profit" (that any
returned Y in the future, minus X loaned now, exceeds 0) is at all meaningful
in a world with inflation, risk of default, and the commonly accepted practice
of charging interest, I don't know what else to say.

Please see any [1] of [2] these [3] to understand why it isn't as simple as "Y
- X > 0", considering things like where the repayments are coming from,
comparing the nominal annualized return to Treasury bond rates, all the fraud
that will never be accounted for, etc., etc. Even pro-bailout articles [4]
have to include weasel phrases like "on a risk-adjusted basis, even [such and
such proposed Y - X] isn’t that big a profit, given the huge downside the
government had," speaking directly to my point of how _it 's hard to properly
account for risk_, which is what any other lender would have done. Arguably,
since there weren't any competitors to the US government for providing bailout
money, the interest rate we use to judge whether it was "profitable" should be
sky high.

[1]: [http://www.nationalreview.com/article/395822/overselling-
tar...](http://www.nationalreview.com/article/395822/overselling-tarp-
myth-15-billion-profit-matt-palumbo)

[2]: [http://www.huffingtonpost.com/2012/04/25/tarp-profit-a-
myth_...](http://www.huffingtonpost.com/2012/04/25/tarp-profit-a-
myth_n_1450363.html)

[3]:
[http://www.forbes.com/sites/halahtouryalai/2012/04/25/dont-b...](http://www.forbes.com/sites/halahtouryalai/2012/04/25/dont-
be-fooled-theres-no-profit-in-bank-bailouts-tarp-
watchdog/#2715e4857a0b2626bb5a72f2)

[4]: [https://www.washingtonpost.com/business/economy/bailout-
high...](https://www.washingtonpost.com/business/economy/bailout-highly-
profitable-for-taxpayers-when-you-look-at-the-right-
numbers/2015/01/01/dc2a05a6-8fa5-11e4-a412-4b735edc7175_story.html)

~~~
Laaw
What are you trying to prove, that it wasn't profitable? That the government's
bank account was not a higher value higher after the bailout than it was
before the bailout?

Because that's a fact, and not an opinion. You seem to be equating a lot of
"is" with "should", and I'm not dealing at all in the "should". It is a fact
of this universe that the US government made a profit off of the bailout, not
mater how many links you provide (that _don 't_ provide a contrary point of
view).

~~~
pak
> What are you trying to prove, that it wasn't profitable?

I'm trying to tell you that your chosen definition of "profitable" is utterly
meaningless in a discussion of economics, but you have completely closed your
mind to this idea. You don't seem to understand inflation, interest rates,
opportunity cost, or the difference between accounting profit and economic
profit [1]. Therefore, I can't proceed with this conversation.

[1]: [https://www.khanacademy.org/economics-finance-
domain/microec...](https://www.khanacademy.org/economics-finance-
domain/microeconomics/firm-economic-profit/economic-profit-
tutorial/v/economic-profit-vs-accounting-profit)

~~~
Laaw
I asked a question because I was unsure, and you behaved like a prime ass. You
will continue to get responses like mine as long as you try to push a
viewpoint as hard as you've been trying to here.

~~~
pak
I'm sorry you feel that way. You don't come off as unsure when you answer all
your own questions and call these answers "undeniably true fact." But yes, I
was more argumentative than I should have been. Best of luck to you.

~~~
Laaw
Thanks for the apology. I especially liked where you minimized your own fault
and tried to blame your behavior on me.

