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Goldman Sachs Resolves U.S. Mortgage Probe for $5.1B
- chillydawg 11y agoBargain.
- shimon 11y agoWhat would be a fair price in your view?
- emidln 11y agoIf the penalty isn't higher than the derived value, it's not a penalty, but a cost of doing business.
- jimbokun 11y agoOK, so what was the derived value?
- chillydawg 11y agoShareholders and directors paying that money out of personal wealth. To be honest, I don't know whether it actually was a bargain, but it probably is. Goldman seem to make vast sums of money and routinely factor in 11 digit legal bills as a matter of course. They appear to break the law knowing that their eventual bill will be considerably less than their overall profits and even better - no one has to go to jail.
- cmsmith 11y agoThe shareholders are paying out of their personal wealth. This was expected and already priced into the stock.
- eplanit 11y agoWell they were bailed out with $10B plus lots of other props[1]. Some significant portion [some might say all + interest] of that would seem fair. [1] https://en.wikipedia.org/wiki/Goldman_Sachs https://en.wikipedia.org/wiki/Goldman_Sachs
- marnett 11y agoWhen will people stop talking about the "bailout." It was a relief fund. Goldman paid the 10B back in ONE year. TARP turned a profit. When will you stop living in 2008?
- deleted 11y ago[deleted]
- SeanDav 11y ago3x Revenues for the years in question. The current penalty is not much more than a slap on the wrist, because even after paying the fine Goldman Sachs makes a profit from the business for the years in question. People see Billions and think the fine is significant, but unless the fine is linked to actual income, it is fairly meaningless.
- frandroid 11y agoWe'll get an idea of how others think of the value of this settlement by how the stock price moves after this...
- kafkaesq 11y agoFelony convictions, jail time, and a life-long industry ban for the perpetrators. In addition to the fines of course. And if there are repeated violations, dismantling of GS as a corporate entity + nationalization of its assets would be a good place to start.
- jessaustin 11y agoGS is a corporation, an entity that exists at society's pleasure. When society grows displeased at the antics of habitual corporate offenders, society should impose a form of bankruptcy, in which the corporation ceases existence and its assets are divided among lenders and victims. The norms of corporate governance would change, swiftly.
- EdHominem 11y agoJail for everyone who demonstrated a conflict of interest. Total recovery of lost funds by selling off assets of the guilty.
- julienchastang 11y agoThe fine is roughly 10% of their Mkt cap [1]. Remember the original $500M fine in 2010? That was truly awful [2]. [1] http://finance.yahoo.com/q?s=GS http://finance.yahoo.com/q?s=GS [2] http://www.nytimes.com/2010/07/16/business/16goldman.html http://www.nytimes.com/2010/07/16/business/16goldman.html
- gohrt 11y agoMuch of their market cap is dispersed in the form of compensation to employees and management, so market cap is an underestimate of the profit from activities.
- oxide 11y agoawfully cheap.
- wahsd 11y agoFraud pays ... REALLY WELL. Good Job, Obama.
- humbleMouse 11y agoSo Goldman gets to sell these mortgages, short the mortgages they sold, and then are fined only 5.1B for the privilege of doing so? Pure insanity.
- forgetsusername 11y ago>So Goldman gets to sell these mortgages, short the mortgages they sold Yes, they do. And as a market maker, there's nothing at all wrong with this and isn't the origin of the probe. They're in trouble for "improperly vetting" mortgages that they sold, which in my opinion is pretty subjective. But the politicians want to exact a price.
- deleted 11y ago[deleted]
- chinathrow 11y agoSettled, no one goes to jail. Why am I not surprised?
- itissid 11y agoNever forget... the vampire squid. http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405 http://www.rollingstone.com/politics/news/the-great-american...
- deleted 11y ago[deleted]
- abpavel 11y agoI wonder what would be the actual figure without settlement, since settlement in corp vs. gov cases means that a corp has calculated that it is cheaper to settle than to argue in the court of law. What where they avoiding? Brand damage? Management responsibility? More unopened cans of worms? I guess we'll never know...
- chillydawg 11y agoExecutives using shareholder money to bribe their way out of jail is what is going on. If I were a shareholder I'd prefer my execs to go to jail - it's far cheaper.
- whatok 11y agoYou could very well be a shareholder of a bankrupt company if execs start going to jail.
- USAiscorrupt 11y agoYet another example of the corrupt American state. Destroy the lives of thousands and get a wrist slap, be black and use drugs, go to jail for years and years.
- r0m4n0 11y agoAnd like every other corporate settlement, they will write off $5 billion in expenses on their taxes (likely another billion more with attorney fees)... effectively shorting the US billions in tax revenue...
- gohrt 11y agoOne presumes that they paid taxes on $5B revenue in previous years, so there's no problem with this part.
- r0m4n0 11y agoI partially see where you are coming from... the equivalent made up story goes something like this: I am a payroll clerk at Company A and I pay myself an extra $10,000 a month illegally for 10 years. For some crazy insane reason no criminal charges are ever brought directly against me but a civil court finds me at fault for stealing the money. I pay the $1,200,000 back to Company A and pay a fine, $1,000 to the man. I claimed that $1.2 million as income and paid taxes on it so I should get my tax money back! The sad part is the damage they did was probably in the trillions, but this civil court couldn't realistically make them pay that back. Much of their meager slap on the wrist is tax deductible...
- generalledger 11y agoI don't think that is correct. "penalties or fines paid to any government agency or instrumentality because of a violation of any law are not deductible" https://www.irs.gov/publications/p535/ch11.html https://www.irs.gov/publications/p535/ch11.html
- r0m4n0 11y agoThese aren't criminal violations... And actually they probably aren't penalties or fines either. I'm not a lawyer of any sort but I don't believe restitution == fines/penalties. All depends on verbiage in criminal court, IRS loopholes, and the details of the case. "Big banks such as Bank of America and JPMorgan Chase will receive deductions against the corporate tax that will amount to between half and nearly three-quarters of their multibillion-dollar settlements, at least. Meanwhile, midsized banks and nonbank lenders generally get to deduct the whole shebang." http://www.newsweek.com/2014/11/07/giant-penalties-are-giant-tax-write-offs-wall-street-279993.html http://www.newsweek.com/2014/11/07/giant-penalties-are-giant... and even expenses related to criminal violations can be deducted if they stemmed from your job
- chishaku 11y ago"839 people convicted in the savings-and-loan scandals of the 1980s." "1 Wall Street executive convicted for actions during the recent financial crisis." http://www.nytimes.com/2014/05/04/magazine/only-one-top-banker-jail-financial-crisis.html http://www.nytimes.com/2014/05/04/magazine/only-one-top-bank...
- dopamean 11y agoFrom this it seems that what financial executives learned from their buddies going to jail was that they need to lobby the correct people so that when the shit hits the fan (and it's their fault) no one will prosecute them. Every prosecutor who had the ability to investigate and eventually bring charges and did not should be ashamed of themselves.
- rayiner 11y agoContrary to popular belief, there are no lucrative private practice jobs/political appointments waiting for unsuccessful prosecutors. Successfully prosecuting a major bank executive would have been a career-making win for an ambitious attorney in the DOJ. Indeed, shortly after Bear Stearns collapsed, the government brought criminal cases against two Bear Stearns executives: http://www.npr.org/templates/story/story.php?storyId=91899047 http://www.npr.org/templates/story/story.php?storyId=9189904.... Both men were acquitted at trial: http://www.wsj.com/articles/SB125788421912541971 http://www.wsj.com/articles/SB125788421912541971. That was a humiliating result, given the DOJ's white collar division boasts a 90%+ conviction rate. People ignore the relevant differences between the S&L crisis and the mortgage crisis. The former took place during a time of heavy regulation, and involved thousands of smaller banks and relatively unsophisticated individuals. The latter took place at the tail of a long period of deregulation, and involved large, legally-sophisticated banks. At a big bank like Goldman, a routine part of a banker's or trader's job is running things by the in-house lawyers. By and large that wasn't true for the savings and loans that failed decades ago. And while legal oversight doesn't prevent excessive risk-taking, or buying loans with bad underwriting, it does tend to prevent activities that can be easily prosecuted as criminally fraudulent. It's notable that there were virtually no prosecutions in the aftermath of the Great Depression either. It's worth considering what similarities and differences there are between the Great Depression, the Savings and Loan crisis, and the 2008 real estate collapse.
- dragonbonheur 11y agoStill nobody gets a criminal record. But the kids getting caught smoking pot will get to face a lifetime of stigma and get a criminal record. US employers have to realize that since so many US citizens get thrown in prison, being a former convict and having paid your dues to society by having been in prison should not prevent anyone from getting a decent job. If someone has been punished once, the debt to society is already paid.
- 6stringmerc 11y agoIn alignment with what you've put forward, I'd also consider that a lot of studies point to the US prison system as not helpful for skills or emotional state when returning to society. Holding the repaid debt of punishment over the person when seeking employment is a stigma unfortunately. This difficulty re-entering can lead to frustrations and poor choices, increasing the potential for another offense.
- moeadham 11y agoSerious question: Which department specifically gets this $2.39 billion civil penalty & $875 cash payment? What does that money go towards? I know with the recent UBS case, it ended up going to the NYDFS, and seemed to just pay down New York's deficit. Not really helping the people who were actually damaged by this behaviour.
- Osiris 11y agoThat's what disturbs me about these settlements. Shouldn't the settlements be used exclusively toward helping those that were negatively impacted by the bad behavior?
- chillydawg 11y agoWell, if you take the view that everyone suffered (except a very tiny minority of shareholders and employees), then that money going into the general taxation pool is helping the victims. It pays off debt or buys bridges or whatever.
- ahallock 11y agoOr the money could be used for any of the vile activities the State is up to thus ironically contributing to more suffering. Let's not forget that.
- breischl 11y agoIn theory that makes sense. But in practice it's hard hunting down the actual effects of something this big. Also, you might not be so happy with the results of helping those who were impacted. Some of the easiest to find of those who were hurt are those who bought the mis-rated mortgage backed securities. A lot were sold to non-US entities like foreign mutual funds and sovereign wealth funds. Can you imagine how happy everyone in the US would be if a big chunk of the settlement got shipped off to rich foreigners? It might be fair in some sense, but politically it would be awful. Hence, easier to just dump it into some state and/or federal budget's general fund.
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- 1024core 11y agoThis lies solely on Obama's shoulders. Don't get me wrong: I campaigned for the guy in 2008, so I'm no right-wing-nut. But I have been very disappointed in how he's let them off with a slap on the wrist. Between this (lack of prosecution) and the drone campaign, he's been a big disappointment for me.
- wmeredith 11y agoYep. Same boat here. I voted for hope and change. Got Bush-lite.
- i_laugh_at_you 11y agoSame here. Almost tempted to vote for crazy,racist,sexist,xenophobe trump just to throw a tantrum.
- elbigbad 11y agoBernie Sanders seems like the only candidate in a long time that would be tough on this stuff, though they all promise to be tough on Wall Street.
- debacle 11y agoIf you think Obama has been stonewalled by Congress, having Sanders in office will open your eyes.
- pdeuchler 11y agolol, the ACA passed without a single republican vote. This is just a BS "us vs them" rationalization... either you actually mean "Obama has been stonewalled by Democratic Party infighting", or you're just being disingenuous.
- Jtsummers 11y agoThe ACA was passed in the early days of the Obama administration. When Congress had the following numbers: D R I Senate 57 41 2 House 255 179 In 2010 the distribution changed, so the 112th Congress (2011-2013) had this distribution: D R I Senate 51 47 2 House 193 242 113th: D R I Senate 53 45 2 House 201 234 114th (current): D R I V(acant) Senate 44 54 2 House 188 246 1
- bjoernw 11y agoWhen VW lies about its emissions it's a big deal, the stock drops, the public is appalled, the media can't stop talking about it. When GS gets fined $5B it's just business as usual.
- fleitz 11y agoThis probably has nothing to do with that :) http://priceonomics.com/porsche-the-hedge-fund-that-also-made-cars/ http://priceonomics.com/porsche-the-hedge-fund-that-also-mad...
- justinhj 11y agoMaybe because VW had somewhat of a reputation for being a good quality car manufacturer that would have no need to cheat and lie about their vehicles. Whereas cheating and lying is a common perception of Wall St firms in general.
- jsprogrammer 11y agoThe former head of GS was US Treasury Secretary during the time these offenses took place. The former NY FRB (during the time these offenses took place) head was US Treasury Secretary in the immediate aftermath and beginning of investigations. The current US Treasury Secretary bet against MBS at Citigroup, which required a massive taxpayer bailout to survive. When you can pull all the strings, you can do as you please.
- yodsanklai 11y agoSomething I often wonder. It's quite common on HN to get insiders comments but less on this type of articles. How is it so? what do GS employees or people working in that field think about this?
- fleitz 11y agoProbably along the lines of, 'Hopefully we can make an extra $5.1 billion in the next 8 months so this doesn't impact our commission cheques'
- sseveran 11y agoYou would have to check their financials to be sure but typically banks set aside money to cover settlements in pending litigation. This has been common at banks of the last few years.
- chillydawg 11y agoSenior insiders from tech companies are often techies and will spend time in places like this. Senior insiders at banks are rarely techies. The techies at the banks that do spend time here probably are so far removed from this activity there's not a lot to talk about.
- L_Rahman 11y agoNot a GS employee, but I work in the industry. Fixed-income securities (like the bonds in question) went from being the most profitable division for investment banks to one of the least. Major banks around the world and shutting down or significantly shrinking their investment banking divisions (Deutsche Bank, Credit Suisse) and specifically closing fixed-income desks. The reaction from those of us in the industry is that there was a problem, and we corrected it.
- whatok 11y agoPossibly violating non-disparagement clause in contract and getting sued into oblivion > Hacker News karma
- spinlock 11y ago
- forrestthewoods 11y agoHow is this not criminal fraud? The public wants blood. Why is the DOJ not similarly bloodthirsty? You'd think they would be. That'd be a career making case. Prosecutors would be famous for 40 years. I don't get it. Edit: I don't mind downvotes if someone can explain how the fraud wasn't criminal.
- droithomme 11y agoGoldman Sachs received a $10 billion bailout. https://projects.propublica.org/bailout/list https://projects.propublica.org/bailout/list
- deleted 11y ago[deleted]
- praxulus 11y agoThey paid back $11.4 billion though.
- sosuke 11y agoThat's an excellent loan isn't it. A home loan usually ends up in twice the price being paid back over the length of the loan.
- praxulus 11y agoA home loan is also paid back over 15 to 30 years. The bailout loans were paid back in under 5 years. Are you familiar with the "time value of money"?
- sosuke 11y agoYou're right, at 5 years only a billion dollars of interest would have accrued with 4% interest.
- dangrossman 11y agoA home loan would've generated 3-4% in interest a year. The US government made over 14% in less than a year on this loan. That would make it terrible, not excellent, for the borrower -- more akin to a high interest credit card than a mortgage. Mortgages involve paying so much back because you have interest compounding on a large balance for 15-30 years.
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- vaadu 11y agoWhy no criminal probe? Her are three reasons: GS has friends in high places. GS would have brought a legal force more formidable than the governments and stretched the case out for a decade or more. Many government people involved in the case may not want to alienate the company they want to work for after government service. Too big to fail should also be too big to charge criminally.
- mkhalil 11y agoTwo bankers from Goldman Sachs profited around as much as the fine is in the Summer of 2007. Slap on the wrist is an understatement.
- whatok 11y agoSource please.
- mkhalil 11y ago"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. By summer 2007, they persuaded colleagues to see their point of view and convinced skeptical risk management executives." 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... http://www.guardian.co.uk/business/2007/dec/21/goldmansachs.useconomy http://www.guardian.co.uk/business/2007/dec/21/goldmansachs.... http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2788346/Subprime-star-Josh-Birnbaum-leaves-Goldman.html http://www.telegraph.co.uk/finance/newsbysector/banksandfina...
- whatok 11y agoProfited makes it sound like their bonuses were $4bn. It's a borderline useless number when framed vs a group. Regardless of what the article says, there is no way those two made that much solely on their own.
- sna1l 11y agoPaying this fine won't impact GS at all. In fact, their stock has risen today, albeit financials as an industry are up. Investors will chalk this up as a one-time charge and earnings estimates will be revised down appropriately without any downside. If the government actually wanted to punish them, the fine would have to be astronomically high. Or, you know, they could actually fix banking regulations.
- jsprogrammer 11y agoIn the article it says GS had previously provisioned about enough money to pay these damages.
- sna1l 11y agoEven better for them
- deleted 11y ago[deleted]
- xutopia 11y agoI hear a lot about how this is just a slap on the wrist but can you explain to me why it is? 5B is a lot of money afaik. Why is this so insignificant?
- deleted 11y ago[deleted]
- bicknergseng 11y agoAccording to Wikipedia, GS made $39.20 billion in revenue in 2015, with $6.08 billion in net income. I'd say a penalty of about half a quarter's worth of revenue and less than one year's worth of profit for being a major player in the greatest financial meltdown in almost 100 years is about as insignificant as it comes. Imagine if bank robbers were penalized by taking 4/5ths of the profit from only one bank robbery, then released to continue robbing banks.
- ikeboy 11y agoThat assumes that all of their profit is earned illegitimately, which at the very least you'd need to argue for.
- zaroth 11y agoObviously revenue is a red herring, but almost a whole year of profit paid in fines seems pretty substantial to me. 35,000 people worked for 9.5 months to earn the money to pay this. In 2014 they paid an additional $3B. Worth noting that GS played a much smaller role in underwriting the bad loans than the likes of BoA and JPM ($16.6B and $13B settlements), mostly they were vilified for seeing the train wreck coming and helping some investors profit off the implosion. I think the reality is that the fines are absolutely significant and do change behavior at the banks. It is a typical human response to want to crush them under your boot into oblivion, but I think counter-productive.
- bicknergseng 11y ago> Obviously revenue is a red herring I disagree. What if it were a company like Amazon that operates with over 100 billion in revenue but less than a billion in income (many years actually ending up red)? Would 500 million an appropriate fine for, say, willingly misleading consumers about billions of dollars in fraudulent items? If anything, I'd argue income should be the irrelevant number in a scenario like this, though the only numbers that really should matter are ones based on the magnitude of the damage the wrongdoing causes. > the fines are absolutely significant and do change behavior at the banks Is there any evidence of this? > It is a typical human response to want to crush them under your boot into oblivion, but I think counter-productive. Maybe, but I'd argue penalizing one of the major creators of a global financial crisis with a fine that doesn't even cause them to go into red for _one_ year is even worse. Fines all accounted for, GS profited off of the crisis, no executive lost their job, and the behavior that caused millions to lose homes and pensions continues on almost totally unchanged. The human response is to want justice served, and this isn't it.
- alva 11y agoNYSE: GS up 2.5% at time of this comment, which is unintuitive to me. Is this because a significant fine was expected so "baked" into the price? Presumably if the fine was smaller than expected by the market then it could cause an upward evaluation?
- whatok 11y agoBaked into the price long ago because the fine announced months ago: http://www.bloomberg.com/news/articles/2016-01-14/goldman-says-it-will-settle-u-s-mortgage-probe-for-5-1-billion http://www.bloomberg.com/news/articles/2016-01-14/goldman-sa...
- username223 11y agoYes, it was "baked in": > The bank already provisioned for most of the charges. Goldman set aside $1.95 billion for legal and litigation expenses in the fourth quarter, and $4.01 billion for all of 2015, more than double the totals for the two previous years combined. In other words, Goldman normally spends about 1 billion dollars a year fighting and/or settling lawsuits. This year they spent 4. That's elect-a-president money, a couple bucks for every person in the US, or a few hundred for every likely voter in a swing state. Normal intuitions about money simply don't apply at this scale.
- spinlock 11y agoQuestion: did Goldman have a fiduciary responsibility to it's clients to _not_ sell them securities that they wanted to buy? It's easy to blame the banks but don't forget that the people who were buying this crap were being paid millions of dollars a year for their "expertise." This is not a boiler-room stealing pensions from little old ladies. This happened in the board-room. The buyers were the one's who failed their fiduciary responsibility to their clients (i.e. the little old ladies who rely on their pension). The reason pension funds, etc... would buy this crap is because they are underfunded and they need to generate impossible returns to meet their future payouts. We shouldn't give them a free pass on underfunding their liabilities and then blindly taking on extreme risk to make up the shortfall.
- mmanfrin 11y agoextreme risk You mean the Triple-A rated CDOs?
- askyourmother 11y agoWe would not accept shitty ingredients in our food, being told it was a grade beef, when it turned out it was actually alley cat, sewer rat and suchlike mixed in. How on earth did they get away with a grade securitised mortgage products that actually contained a stink load of ready to default loans? Forget blaming a specific person, or whether it may have been technically legal, what can be done to stop them doing this again?
- justin66 11y ago>We would not accept shitty ingredients in our food, being told it was a grade beef, when it turned out it was actually alley cat, sewer rat and suchlike mixed in. This is America. Some percentage of the population not only would accept it but get pretty bitter about government overreach if you proposed that more be done about food safety, and refuse to believe you if you said that selling rat meat is already illegal...
- Zigurd 11y agoYou have put your finger right on why "It's hard to find what was illegal." is bullshit. Either... 1. The issuers of CDOs defrauded the rating agencies giving them false data 2. Or the rating agencies conspired with the issuers to mis-rate the CDOs Or both. And nobody went to prison.
- wfo 11y agoYes we would. We would say "just don't buy from that particular meat seller, it's a free market, buyer beware, the market will take care of it and adjust, competition, I'm very smart I would never get tricked and buy bad stuff like that it's just dumb people who are not as smart as me that would get hurt" -- there is this exact discussion happening higher up in this very comment section.
- whatok 11y agoFor everyone asking why or cynically pointing out that no one went to jail over this, you need to have people agree on what caused all of this before any of that happens.
- gdubs 11y agoLots of comments here regarding 'blame'. On that subject, I found this interview with Michael Burry (featured in the book and movie "The Big Short") to be worth reading: http://nymag.com/daily/intelligencer/2015/12/big-short-genius-says-another-crisis-is-coming.html http://nymag.com/daily/intelligencer/2015/12/big-short-geniu...