Goldman Sachs settles mortgage probe for $5 billion


#1

NEW YORK — Goldman Sachs Group Inc. said it agreed to settle a US probe into its handling of mortgage-backed securities for about $5.1 billion, cutting fourth-quarter profit by about $1.5 billion and closing out a year of record legal and litigation costs.

The proposed deal, which the bank announced in a statement Thursday, would be the latest multibillion-dollar settlement resulting from the government’s push to hold Wall Street firms to account for creating and selling subprime mortgage bonds that helped spur the 2008 financial crisis.

Authorities have already penalized the three biggest US banks — JPMorgan Chase & Co., Bank of America Corp., and Citigroup Inc. — more than $37 billion in the form of cash and consumer relief. In those cases, the government said the banks misrepresented to investors the quality of mortgage loans they securitized into risky bonds.

bostonglobe.com/business/2016/01/14/goldman-sachs-pay-billion-mortgage-settlement/r5TLHN44CLbWtXbFTT3uJK/story.html

And nobody goes to prison. :cake:


#2

That is a shame.


#3

A billion here, a billion there. Pretty soon you’re talking about real money. I remember the Christmas bonuses for Wall Street in 2008. They were cut in half, Half!

After all this time and no one in jail.

Ed


#4

And for what, exactly, should someone go to prison? What specific crime?

It was the Carter Administration that drafted the regulations to loosen standards or be investigated for discriminatory lending practices and it was the Clinton Administration that threatened to enforce them.

No one was complaining when investment accounts were doubling every 3 years. Its only after the fan has been proverbially hit does anyone want to make things “right.”

I don’t believe in scapegoating. You can rest assured that if there were crimes to be prosecuted, the feds would be all over things.


#5

I clearly remember reading the business press shortly after the sub-prime scandal. My “favorite” parts were: banks loaning money to people who could barely pay the minimum on their monthly credit card bill, fake and arbitrary evaluations of home values as if infinity was the limit, and Wall Street, whose only job was watching money and markets, acting surprised. And former Fed Chairman, Alan Greenspan was shocked, shocked that such a thing could happen.

I remember a political cartoon where Alan Greenspan was at a table testifying before some committee as if he could use magical words while the room behind him was ablaze, and a box of matches on the table had the word “greed” on it.

Oh yeah. I’m a Wall Street professional or a banker and I’m going to take a risk!? No way. Quick cash and get out of the way when the building collapses.

An in-house stock analyst at the Ford Motor Company noticed very unusual trading activity, alerted her superiors, and money was quickly shifted out of harm’s way. Of the Big Three, only Ford didn’t ask for bailout money.

Tell me they didn’t know the average guy was going to see a big chunk of his IRA missing or that taxpayers would have to bail out the rich? Oh yeah. Too good to pass that up.

“Act irresponsibly. Please.” That way, at least one company could claim they technically didn’t do anything “wrong.”

Ed :rolleyes::rolleyes::rolleyes:


#6

Ford didn’t need bailout money because they had been downsizing by lay offs and plant closures since their share of the market place dropped. Your assertion is a total fabrication.

If you could distance yourself from the emotion of your previous post perhaps you can explain to us what you, as a lender, would do when the government basically threatens you to either lend money or they will prosecute you for discriminatory lending which is exactly what set off the whole shebang. The price of housing rose 76% from 2001 to 2007 because of the boom in building. Do you ever wonder why a husband and wife with a yearly income of $60-70,000 would take on a mortgage for a 1/2 million dollar house? Who is the greater at fault? Is it the credit card companies fault if someone maxes out their cards with no hope to ever pay it off or would you prefer to see someone at the credit card company go to jail? When does personal responsibility enter the picture?


#7

That is my biggest problem. Goldman Sachs, the corporation pays the fine which if minuscule in terms of its net worth, it’s just a cost of doing business.
The people who make the decisions to rip off investors go scot free. Goldman Sachs and other institutions have been fighting tooth and nail against proposed laws that would state they have a fiduciary duty to investors.


#8

In the history of the stock market there has always been times when the market has experienced a major loss in value. It isn’t anything new. What has always happened is that, over time, the market regains its value. The “average guy” who took a loss in 2007/8 would see his assets recover by 2012 or so if he kept his head and simply sat on them. That is the nature of the market. Buying high and selling low is what foolish people do.

Many people were opposed to the bank bailouts (“the rich?” give me a break) because they think it best to let the weaker institutions fail and the stronger ones will absorb the loss. You will have to ask President Obama why he thought it necessary to bail them out.

You sound very disaffected. Were you part of the Occupy Wall Street movement?


#9

And who are the people who decided to “rip off investors?” What exactly did they do that warrants their going to jail?


#10

The irony is overwhelming that on a supposed Catholic website posters have tried, judged and convicted people with absolutely no evidence or even knowledge of their supposed crimes.

Go figure.


#11

Every investment house that deals in administrative accounts (IRAs and 401k, for example) have in-house analyst who spend all day moving stocks in and out of funds in order to secure the highest gain and limit the loss to their clients. There are thousands of these people doing this.

Do you mean to tell us that 1 analyst at Ford “noticed very unusual trading activity” and managed to do for Ford what the other thousands of analysts around the country and the world couldn’t do for their own institutions and clients?

Please. :rolleyes:


#12

Crime: Securities Fraud.

A synthetic product is at the heart of a recent Securities and Exchange Commission lawsuit against Goldman Sachs alleging investor fraud . . .

The hearing was held by the Senate Permanent Subcommittee on Investigations, which announced Monday that it had conducted an 18-month investigation that found Wall Street powerhouse Goldman Sachs helped create the housing bubble by selling securities backed by risky subprime mortgage loans and then profited off that bubble’s bursting by secretly betting against the market . . .

In his prepared remarks, with protesters holding up signs behind him, Blankfein thanked American taxpayers for the bank’s $10 billion bailout from the federal Troubled Asset Relief Program that began at the height of the financial crisis in 2008. Blankfein acknowledged that many people are “understandably angry about how Wall Street contributed to the financial crisis.”

abcnews.go.com/WN/Business/goldman-sachs-sen-carl-levin-alleges-profit-toxic/story?id=10488196


#13

Tim…

I think the President that needs to answer questions is Bush.

Some important facts to remember regarding the start of the financial crises:
• Dow Jones dropped over 5500 point over the past year (2007)

• Bear Stearns & Lehman Brothers had melted down

• Unprecedented some of money was being poured into AIG to keep it afloat

• The value of peoples 401K’s lost over a third of their value (2.8 trillion dollars between September 2007 and December 2008)
• Foreclosures - 2.3 million properties received filings in 2008 alone (81 percent increase from 2007 and 225 percent increase from the year before that)

These all took place during Bush’s administration. You also have to remember when all this was boiling, McCain came out and told everyone; “The fundamentals of the economy are strong.” This was shortly before everything went to hell…

However, honestly it was everyone’s fault. The “Boom in building” you describe was due to the relax standards in lending. Not because builders just started to arbitrarily building or the government just wanted to start helping poor people?

Let me over simplify, but the problem was complex. After 911, the amount of attention paid by government regulators was reduce in this industries so that resources could be allocated elsewhere. Little attention was given to those banks that conducted predatory lending. Hence, real estate started raising at alarming rates. But we just credit that to a “good economy” even though we didn’t have the GDP to back it up. Banks & Lenders decided to packages these loans in securities like CDO (collateralized debt obligation) and started selling them to Wall Street. All the while the credit ratings bureaus was granting “AAA” ratings on all the bonds insuring that they were enticing to investors.

After the bubble exploded, President Bush signs in October 2008, a bill creating CPP (Capital Purchase Program) so that your friends on Wall Street can have a safety net at your expense. Congress at the time considered the package “too generous” because they contain little in regards to how the money can be used. If you remember that even with the bailout, borrowers found it hard to get a loan because banks were not lending. Instead, they were buying other banks.

I can go on, many of my of my clients work in the financial sector…


#14

Nobody was forcing GS to sell mortgage back securities, so you can’t blame this one on the government. It was their own greed that was the problem.


#15

And that is my point. Should we all go to jail?

Also, the loss in 401k accounts did recover as the market rose. Previously, people’s accounts were doubling every 3 years instead of the usual 8-10. Everybody loves when things are going up but when the piper needs to be paid, then we all expect someone else to pony up.


#16

If we committed fraud, as GS is alleged to have done, then yes we should go to jail. The fact that they would rather pony up $5 billion than fight the allegations does not speak to their innocence. Integrity is very important in financial markets and those who do not show integrity need to be punished mercilessly.


#17

Some homeowners made out pretty well in the bubble. During the boom and bubble years, with home prices going up every year, the majority of the mortgage business was refinancing. Homeowners refinanced their homes every year or two, taking out larger mortgages to pay off the old ones and take out excess cash based on higher valuations. They were using their homes as free money generators. Some people made more money refinancing their houses than they did in their jobs. A lot of homeowners made a great return, generating cash from continued refinancing. When the market turned, many of them just walked away, richer.

Mortgage backed securities are not illegal. The government loved them. Still does. The whole idea was to provide more liquidity to the mortgage market, so lenders could make more home loans. If every company had to retain its own home loans indefinitely it would be limited in the amount of new loans it could make. If the government wants to make mortgage backed securities illegal, it could do that, but that will never happen because it would dampen the housing market.

And if mortgage loans were not guaranteed by the government—FHA—VA—Freddie Mac, Fannie Mae—credit standards would certainly be tighter. In the absence of government guarantees, private mortgage insurors would fill in the gap, but they would not insure bad loans, and they charge premiums for their services. (I have to chuckle every time a see a TV commercial advertising “government guaranteed” loans. What does the government guarantee? It guarantees the lender against loss! That lender will have no qualms about foreclosing your loan because it knows it will get paid by the government.)

When mortgage backed securities are filled with bad loans, it’s no secret: buyers of those securities can see what they are buying.


#18

I dont think anyone has learned their lesson from this, around here, I see new housing developments left and right and none are smaller affordable homes, they are all ‘Mcmansions’, then a quick glance at home builder listings for my area, there are pages and pages of custom home builders.


#19

Thanks for pointing 911 out. That certainly set the groundwork for some panicky actions undertaken by the Fed. Trying to exit that strategy proved to be a major undertaking which we’re still trying to do.

Many, however, point the blame at the repeal of Glass-Steagall for allowing banks to engage in businesses that had little to do with direct lending.


#20

Tim,

I don’t think you understand the severity of what took place within the financial sector during the housing collapse. You attempt to blame Carter and Clinton on an issue that was more widespread. I am just saying that clearly, you are biased by your political persuasion which help created a conclusion that is not entirely accurate.

Yes, I believe people should have gone to jail. I think you are aware of Bernie Madoff, his Ponzi scheme just seems to reflect how acceptant we are of wrong doing as long as everyone is making money. However, Madoff was just one case within a financial sea of many! The tragedy is that many of these people were in key positions to encourage it or just simply look the other way.

Within all this melee, the “Sub-prime” mortgage was given birth. It was not good enough that banks were making large sums of money by selling off loans they originated to third parties. At one time this practice presented little risk to the financial system because the primary purchasers of the loans were the two massive “government sponsored entities” or GSE’s; Fanny May & Freddie Mac.

Unfortunately, that was not enough for Wall Street, someone smart discovered that if they securitize mortgages and started presenting them to investors - there was a lot of money to be made. If you remember, Bonds were one of those “Old Folks” vehicle for investing for those that did not like the roller coaster of investing and just wanted to see stable growth. But when “mortgage-mania” hit, banks needed to find new ways to package and acquire new loans. We than started seeing all these creative ways of borrowing. Most of us thought it was absurd to have a mortgage were the buyer did not have to have any money down? But the banks didn’t care, they were just going to securitize those mortgages and immediately sell them to investors.

Of course when the “Bubble Burst”, all these banks went running to our government proclaiming that they were “too big to fail”. However, sadly the money they received from your generosity did not go into the intended direction of creating loans, but providing revenue for purchasing other banks along with large bonuses to their executives. Remember, banks are larger today than they were at the start of the financial crises.

The argument at the time for not prosecuting many of the executives within these companies - Like Goldman Sachs, is that the scandal and disruption would cause a large instability within an already very volatile financial sector. Sadly, the extent of their crimes is complex and most Americans do not understand the severity.


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