The smart money wins again. From the NYT:
Goldman Mortgage Settlement Is Much Less Than Meets the Eye
By NATHANIEL POPPER APRIL 11, 2016
State and federal officials said on Monday that Goldman Sachs would pay $5.1 billion to settle accusations of wrongdoing before the financial crisis.
Goldman’s market capitalization is $64 billion, so this is just a cost of doing business. No individual executives are going to jail or will face civil liability. We’re not barbarians like back in the early 1990s when over 1,000 financial executives were convicted in the savings & loan mess.
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.
The bank will be able to reduce its bill substantially through a combination of government incentives and tax credits. 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. That is because it will receive a particularly large credit for each dollar it spends on affordable housing.
Goldman is the last of the major American banks to settle with the government. Past deals with other banks also contained some of these concessions, but Goldman appears to have negotiated an even sweeter deal on certain points. For all the banks, the credits suggest that the amounts that the banks will have to actually spend on consumer relief will be much lower than the numbers announced in the news releases. …
Like other banks, Goldman bought loans issued by subprime mortgage specialists like Countrywide Financial. Goldman then packaged these loans into bonds that were able to get the highest rating from credit rating agencies. The loans were sold to investors, who sustained losses when the loans went sour.
Over the course of 2006, Goldman employees took note of the decreasing quality of loans that it was buying, according to a statement of fact released along with the settlement. When an outside analyst wrote a positive report about Countrywide’s stock in April 2006, the head of due diligence at Goldman wrote in an email: “If they only knew.”
Despite the worrying signs, Goldman did not alert investors who were buying the bonds it was packaging, officials said on Monday.
How much will Obama get paid for his future speeches to Goldman Sachs? Probably less than 1/1000th of what Goldman Sachs saved today.