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Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims

114 points by mashgin 11y ago

sitkack 11y ago
Not enough. 500B would be more accurate.
littletimmy 11y ago
Can someone express this as a percentage of the claims themselves? The $5B figure is meaningless without knowing the size of Goldman's loot.
- deleted 11y ago
  [deleted]
jsprogrammer 11y ago
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.
username223 11y ago
For context, that's about 3 months' profits. Not nothing, but not much compared to the damage they caused.
- samfisher83 11y ago
  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 11y ago
    Unless punishment sets you to negative net profit, it is not a punishment
- mkhalil 11y ago
  How about this: "Two Goldman traders, Michael Swenson and Josh Birnbaum, are credited with being responsible for the firm's large profits during the crisis.[18][19] The pair, members of Goldman's structured products group in New York, made a profit of $4 billion by "betting" on a collapse in the sub-prime market, and shorting mortgage-related securities."[1] Two tradesmen made this in less than one year. I wouldn't be surprised if it's an order of magnitude less that the whole firm made through the whole period of the crisis. [1]: https://en.wikipedia.org/wiki/Goldman_Sachs#Actions_in_the_2007.E2.80.932008_mortgage_crisis https://en.wikipedia.org/wiki/Goldman_Sachs#Actions_in_the_2...
- rtpg 11y ago
  But not all the profits are gained illegally (a priori). Of course you want the punishment to fit the crime, so you qualify how much money they made off of the crime itself and charge an order of magnitude more than that. Convict them of 4 similar crimes and you wipe out a year's profit! I don't think GS takes a 25% drop in profits lightly. Now in this case it sounds like they caused a lot of damage for what they did.
rl3 11y ago
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.
ksar 11y ago
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 11y ago
  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.
  - ChrisAntaki 11y ago
    Is there a definitive list somewhere? If there was, a boycott could be organized.
    - tim333 11y ago
      I think one of the problems is that it's hard to allocate blame. The guy selling iffy securities will probably claim he thought they were good and so on. I'm not quite sure how you fix that. Require the bank to list individuals as part of the settlement perhaps?
  - forgetsusername 11y ago
    >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 11y ago
      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.
jrcii 11y ago
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 11y ago
  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 11y ago
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/2010-07-24-goldman-bailout-cash_N.htm http://usatoday30.usatoday.com/money/industries/banking/2010...
- melling 11y ago
  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_Program https://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Progra...
  - e12e 11y ago
    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-ebook/dp/B010KNF704/ref=sr_1_1?ie=UTF8&qid=1452839853&sr=8-1&keywords=swimming+with+sharks http://www.amazon.com/Swimming-Sharks-Journey-World-Bankers-... (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-banks-ignored-lessons-of-crash http://www.theguardian.com/business/2015/sep/30/how-the-bank...
    - mikeyouse 11y ago
Laaw 11y ago
I mean, we gave them loans, not free money, right? The American people profited in a literal sense on the bailout.
- pak 11y ago
  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.edu/ifdebook/issues/bailouts/eesa.shtml http://web.archive.org/web/20090110184334/http://www.uiowa.e... [2] http://web.archive.org/web/20090207100935/http://cop.senate.gov/documents/cop-020609-report.pdf http://web.archive.org/web/20090207100935/http://cop.senate.... [3] http://www.nytimes.com/2009/01/18/business/18bank.html http://www.nytimes.com/2009/01/18/business/18bank.html
  - hueving 11y ago
    >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 11y ago
      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.
cookiecaper 11y ago
>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 11y ago
  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 11y ago
    >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.
suprgeek 11y ago
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.
- tn13 11y ago
  And interestingly almost all politicians of all hue and color and with capacity to do something seem to be siding with them.
  - ChrisAntaki 11y ago
    Bernie Sanders wants to break up the banks that took bailout money, creating smaller banks that are no longer "too big to fail." What are people's thoughts on this proposal?
    - isnullorempty 11y ago
      I don't think this is the correct approach, it's not the size of the company that is the problem. In fact large companies (not monopolies) can produce/offer services/products that smaller companies can't due to the scale (i.e. mobile banking). What should happen is the employees or execs responsible should have gone to jail for life for the destruction they caused providing a deterrent effect, and also much stronger regulation policed by a truly independent regulator with the teeth to act.
      - simonh 11y ago
        In China people can be sent to jail for 'causing destruction' but in western countries you have to have been proven, beyond reasonable doubt, to have broken a law. Most of the activities the banks were carrying out that contributed to the crash were well known long before the crash, and were not illegal and they weren't being called out for it. In fact many politicians and the public were keen for broader availability of cheap loans. So yes, we need better regulation of financial institutions, but there were many causes of the financial crisis and blame lies in many places and many lessons learned, but you can't apply laws retroactively or arbitrarily.
jetskindo 11y ago
So they are paying back some of the bail out money. Not exactly a fine, and the individuals responsible are not affected.
ttctciyf 11y ago
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-ray-rice-tapes-finance-goldman-sachs http://www.theguardian.com/business/2014/sep/26/us-regulator... Maybe there's some reason I missed that this didn't make a bigger or longer-lasting splash.
qaq 11y ago
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 11y ago
  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.
yodsanklai 11y ago
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.
edelans 11y ago
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 11y ago
  > 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 11y ago
    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-traders-hid-toxic-debt.html http://www.telegraph.co.uk/finance/recession/5025115/RBS-tra... [2] http://news.bbc.co.uk/2/hi/business/7096845.stm http://news.bbc.co.uk/2/hi/business/7096845.stm
    - Lazare 11y ago
      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 11y ago
        The sold the securities and shorted them at the same time.
jug5 11y ago
"Claims!" hahahahaha, at least we know who owns NPR.
chrisbennet 11y ago
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
AmirS2 11y ago
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
rdlecler1 11y ago
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."
pasbesoin 11y ago
Financial penalties/settlements: The modern world's indulgences. I expect a similar amount of change in the underlying behavior.

114 points by mashgin 11y ago

Not enough. 500B would be more accurate.

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

deleted 11y ago
[deleted]

jsprogrammer 11y ago

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.

username223 11y ago

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

samfisher83 11y ago
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 11y ago
  Unless punishment sets you to negative net profit, it is not a punishment
mkhalil 11y ago
How about this: "Two Goldman traders, Michael Swenson and Josh Birnbaum, are credited with being responsible for the firm's large profits during the crisis.[18][19] The pair, members of Goldman's structured products group in New York, made a profit of $4 billion by "betting" on a collapse in the sub-prime market, and shorting mortgage-related securities."[1] Two tradesmen made this in less than one year. I wouldn't be surprised if it's an order of magnitude less that the whole firm made through the whole period of the crisis. [1]: https://en.wikipedia.org/wiki/Goldman_Sachs#Actions_in_the_2007.E2.80.932008_mortgage_crisis https://en.wikipedia.org/wiki/Goldman_Sachs#Actions_in_the_2...
rtpg 11y ago
But not all the profits are gained illegally (a priori). Of course you want the punishment to fit the crime, so you qualify how much money they made off of the crime itself and charge an order of magnitude more than that. Convict them of 4 similar crimes and you wipe out a year's profit! I don't think GS takes a 25% drop in profits lightly. Now in this case it sounds like they caused a lot of damage for what they did.

rl3 11y ago

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.

ksar 11y ago

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 11y ago
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.
- ChrisAntaki 11y ago
  Is there a definitive list somewhere? If there was, a boycott could be organized.
  - tim333 11y ago
    I think one of the problems is that it's hard to allocate blame. The guy selling iffy securities will probably claim he thought they were good and so on. I'm not quite sure how you fix that. Require the bank to list individuals as part of the settlement perhaps?
- forgetsusername 11y ago
  >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 11y ago
    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.

jrcii 11y ago

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 11y ago
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 11y ago

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/2010-07-24-goldman-bailout-cash_N.htm http://usatoday30.usatoday.com/money/industries/banking/2010...

melling 11y ago
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_Program https://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Progra...
- e12e 11y ago
  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-ebook/dp/B010KNF704/ref=sr_1_1?ie=UTF8&qid=1452839853&sr=8-1&keywords=swimming+with+sharks http://www.amazon.com/Swimming-Sharks-Journey-World-Bankers-... (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-banks-ignored-lessons-of-crash http://www.theguardian.com/business/2015/sep/30/how-the-bank...
  - mikeyouse 11y ago

Laaw 11y ago

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

pak 11y ago
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.edu/ifdebook/issues/bailouts/eesa.shtml http://web.archive.org/web/20090110184334/http://www.uiowa.e... [2] http://web.archive.org/web/20090207100935/http://cop.senate.gov/documents/cop-020609-report.pdf http://web.archive.org/web/20090207100935/http://cop.senate.... [3] http://www.nytimes.com/2009/01/18/business/18bank.html http://www.nytimes.com/2009/01/18/business/18bank.html
- hueving 11y ago
  >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 11y ago
    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.

cookiecaper 11y ago

>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 11y ago
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 11y ago
  >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.

suprgeek 11y ago

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.

tn13 11y ago
And interestingly almost all politicians of all hue and color and with capacity to do something seem to be siding with them.
- ChrisAntaki 11y ago
  Bernie Sanders wants to break up the banks that took bailout money, creating smaller banks that are no longer "too big to fail." What are people's thoughts on this proposal?
  - isnullorempty 11y ago
    I don't think this is the correct approach, it's not the size of the company that is the problem. In fact large companies (not monopolies) can produce/offer services/products that smaller companies can't due to the scale (i.e. mobile banking). What should happen is the employees or execs responsible should have gone to jail for life for the destruction they caused providing a deterrent effect, and also much stronger regulation policed by a truly independent regulator with the teeth to act.
    - simonh 11y ago
      In China people can be sent to jail for 'causing destruction' but in western countries you have to have been proven, beyond reasonable doubt, to have broken a law. Most of the activities the banks were carrying out that contributed to the crash were well known long before the crash, and were not illegal and they weren't being called out for it. In fact many politicians and the public were keen for broader availability of cheap loans. So yes, we need better regulation of financial institutions, but there were many causes of the financial crisis and blame lies in many places and many lessons learned, but you can't apply laws retroactively or arbitrarily.

jetskindo 11y ago

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

ttctciyf 11y ago

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-ray-rice-tapes-finance-goldman-sachs http://www.theguardian.com/business/2014/sep/26/us-regulator... Maybe there's some reason I missed that this didn't make a bigger or longer-lasting splash.

qaq 11y ago

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 11y ago
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.

yodsanklai 11y ago

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.

edelans 11y ago

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 11y ago
> 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 11y ago
  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-traders-hid-toxic-debt.html http://www.telegraph.co.uk/finance/recession/5025115/RBS-tra... [2] http://news.bbc.co.uk/2/hi/business/7096845.stm http://news.bbc.co.uk/2/hi/business/7096845.stm
  - Lazare 11y ago
    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 11y ago
      The sold the securities and shorted them at the same time.

jug5 11y ago

"Claims!" hahahahaha, at least we know who owns NPR.

chrisbennet 11y ago

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

AmirS2 11y ago

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

rdlecler1 11y ago

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."

pasbesoin 11y ago

Financial penalties/settlements: The modern world's indulgences. I expect a similar amount of change in the underlying behavior.