On Monday, Wall Street behemoth Goldman Sachs agreed to shell out more than $5 billion for deceiving investors and contributing to the 2008 financial crisis. The settlement, which was brokered by several state attorneys general as well as the feds, is supposed to provide $1.8 billion in relief to distressed homeowners, along with a hefty civil penalty. In a statement, US Attorney Benjamin B. Wagner of the Eastern District of California said it shows that the United States "remain[s] committed to pursuing those responsible for the financial crisis," while Acting Associate US Attorney General Stuart F. Delery said it "makes clear that no institution may inflict this type of harm on investors and the American public without serious consequences."
But while $5 billion seems like a sizable punishment, it's really just a drop in the bucket for a global player like Goldman.
Dennis M. Kelleher, CEO of the non-profit financial reform advocacy group Better Markets, tells me that in the last four years, Goldman's revenue has been more than $135 billion. In other words, the penalty will affect them about as much as a Nerf dart gun might upset an NFL linebacker.
Monday's announcement is particularly glaring because after other majors like JP Morgan and Bank of America struck deals of their own, Goldman was the last of the big banks facing scrutiny over the meltdown. That means it's safe to say some the more notorious swindlers in American history have officially gotten off scot-free.
The statement of facts in the settlement tells a story familiar to anyone who followed the financial crisis or saw The Big Short. Like the other big banks, Goldman Sachs peddled residential Mortgage-Backed Securities (MBS), which is another way of saying they put bunches of crappy loans into bundles. They then sold those bundles to investors while vouching for their quality, when in reality they hadn't bothered to look into borrower's ability––or even desire––to repay them. As laid out in the settlement, between December 2005 and 2007, Goldman's practice was to spot check various loans to see if they met underwriter's guidelines. In many cases, 80 percent of the loans went unchecked. In fact, in numerous loan pools, more than 20 percent of the loans were graded as "EV3," which is shorthand for saying they carried an unacceptable level of risk and were basically doomed to fail.
Even when shit started to hit the fan in 2006, Goldman did not take its foot off the pedal. Fremont Bank was a top-priority client and originator of many of these bad loans, and in the middle of that year, Goldman found out that the smaller bank's rate of early payment defaults was increasing in a way that should have set off an alarm. But at no point did Goldman put Fremont on their no-bid list, even while the client had unpaid claims from the defaults they had yet to even settle. Around the same time, an outside analyst gave a positive report on the stock performance of Countrywide, another Goldman client that specialized in subprime mortgages. "If they only knew," wrote the head of due diligence at Goldman Sachs, referencing the report.
Well all know what happened as a result of this cavalier indifference. People lost their homes and the country spiraled into an economic recession unlike any since the Great Depression––one that left people feeling so hopeless that thousands in North America and Europe committed suicide. And while the too-big-to-fail banks continue to operate largely as they did, the rest of the country is still cleaning up the mess. According to the Government Accountability Office (GAO), the gross negligence and misrepresentation Goldman Sachs (and other banks) engaged in cost American homeowners $9.1 trillion on paper, and the broader recession cost the economy $22 trillion.
Brad Miller, a former North Carolina Congressman who worked extensively on financial regulation in Washington and now litigates against big banks, says that the fees do very little to actually help the people banks hurt. That $1.8 billion in relief from Goldman that's supposed to help homeowners in distress? Miller says that in these cases, the terms are kept vague, and Goldman can use that money to do things that are in its best interest anyway, like writing off debt that's obviously not going to be repaid, demolish foreclosed upon houses, and modify mortgages that are in distress.
"It would be like me agreeing to be right handed all day today or to wake up tomorrow morning and have coffee," Miller says of the settlement agreements. "Those things are going to happen anyway."
He also pointed to something critics have called the "bullshit-to-cash ratio" as one indicator of how little the penalty will affect a giant like Goldman. Basically, it's important to note that only about $3 billion of the $5 billion will be paid out in cash. On the other hand, about half is tax-deductible and will be placed on the backs of taxpayers––even though the median American family lost about 40 percent of their wealth during the worst stretch of the crisis.
What's more, the New York Times notes that after incentives and tax credits, Goldman can chop about a billion dollars off the total penalty. According to a chart attached to the settlement, for every dollar Goldman puts into community investment in New York, they get a $2 tax credit.
Oh, and there's also the glaring fact that not a single person will see prison time, including Lloyd Blankfein, the Goldman Sachs CEO and president through the financial crisis, who hauled in $157.3 million between 2006 and 2008. "The banks are released from all liability for their illegal conduct, but DOJ always says that no criminal charges or charges against individuals are released," notes Kelleher. "However, no prosecutor has then gone after individuals criminally. So they say it, but it's meaningless."
In other words, this is a darkly comical disaster. When former Attorney General Eric Holder dished out similar slaps on the wrist, at least there was some context: his tenure as our country's top crime-fighter was bookended by stints with a white-collar law firm whose client list includes many of the big banks he had the opportunity to truly punish. Goldman is the first big bank to ink an agreement with his successor, Loretta Lynch, helming the ship. And because it's the last of the majors, it's clear America is stuck with the status quo of basically doing nothing and then writing self-congratulatory press statements about how justice was served.
"There's very little in the settlement that will deter bad conduct in the future," Miller, the former Congressman, tells me. "Investors appear to get nothing out of this. The employees involved not only didn't have to worry about how they would look in orange jumpsuits, but they get to keep the bonuses they got paid a decade ago. There has been very little justice."
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