Goldman Sachs pays Federal Government to Keep Its Partners from Jail

Nice arrangement. Rob a bank. Get caught. Forced to put some of the money back, or rather, give money to the alleged watchdogs (Washington DC) for their pet projects.

The headline reads, "Goldman Says U.S. Mortgage Settlement to Cost $5.1 Billion."


A staggering sum for certain. But even the headline figure of 5.1 Billion is a deception. It is just on paper. How “Wall Street” of them.

It is difficult to believe that there was no securities fraud involved in the packaging and selling of questionable mortgage backed securities and cosmetic collateralized debt obligations. Are we to believe that securities fraud carries no jail time? Apparently law breaking on Wall Street merely results in sending money to Washington to be spent on pet projects. These projects get no money if jail time is the penalty. A “win win” convenience for both Wall Street and Washington DC.

What is needed is some accountability of the actual monies involved in these headline fines. Where indeed does the money go, and who gets to decide how it is spent?

Here is how the 5.1 Billion dollar fine gets reduced.

Nathaniel Popper of Deal B%K writes,

Goldman Sachs can

“significantly reduce its bill through government incentives and tax credits.”

The number tossed around is 5.1 Billion.

“But that is just on paper. Buried in the fine print are provisions that allow Goldman to pay hundreds of millions of dollars less — perhaps as much as $1 billion less — than that headline figure. And that is before the tax benefits of the deal are included.”

“For example, the settlement calls for Goldman to spend $240 million on affordable housing. But a chart attached to the settlement explains that the bank will have to pay at most only 30 percent of that money to fulfill the deal. “

Around $2.4 billion of Goldman’s fine will be paid in a civil penalty, some will go to consumers who were hurt by the financial crisis, but…

“… any money that Goldman spends on consumer relief will be deductible from its corporate tax bill. “If Goldman spends $2.5 billion on consumer relief, and pays the maximum United States corporate tax rate of 35 percent, it could, in theory, reap $875 million in tax savings,”

“Eric T. Schneiderman, the New York attorney general, announced that Goldman would pay $280 million for community reinvestment and neighborhood stabilization in New York. But an annex to the agreement with New York explains that Goldman will get $2 of credit for every dollar it spends in this area, meaning that it will ultimately have to pay only $140 million to meet the terms of the deal.”

In his article, Mr. Popper notes an unnamed Justice Department official suggested that the violators will be given “extra credit for activities that the government wanted to encourage such as low-income housing. A citizen might wonder how the use of the monies derived from these fines decided? National debt reduction seems reasonable.

Goldman was allowed to be converted from an ‘investment bank” to a “commercial bank” back in 2008. Being allowed to change jerseys in the middle of the game is quite a luxury. Additionally, Goldman received $13 billion from AIG after the later was bailed out by the federal government. The AIG bailout was indeed a very good thing for Goldman Sachs. It must also have been good for the CEO of Goldman, Lloyd Blankfein as well. He just became a billionaire.

Now the headlines of big fines are supposed to assuage the animosity toward the perpetrators. JP Morgan’s settlement is a similar story to Goldman’s. Yet, all this only serves to underscore the arrangement that is Wall Street and Washington DC.

On this, Bernie Sanders is not half wrong. Perhaps the release of the transcripts of Hillary’s speech to Goldman Sachs could have been part of the settlement.

James Longstreet

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