By John M. Pachkowski, J.D.
Although the Justice Department, along with its federal and state partners, procured a $5.06 billion settlement with Goldman Sachs related to Goldman’s conduct in the packaging, securitization, marketing, sale, and issuance of residential mortgage-backed securities (RMBS) between 2005 and 2007, there has been a small of chorus proclaiming that the actual settlement will be at least a billion dollars less.
Under the terms of the settlement, Goldman Sachs will pay a $2.385 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act. An additional $875 million will be paid by Goldman Sachs to settle claims filed by the National Credit Union Administration, the States of California, Illinois, and New York, as well as the Federal Loan Bank of Chicago and Federal Home Loan Bank of Seattle. The Federal Home Loan Bank of Des Moines is the successor-in-interest to the Federal Home Loan Bank of Seattle.
The settlement also includes an agreed-upon Statement of Facts that describes how Goldman Sachs made multiple representations to RMBS investors about the quality of the mortgage loans it securitized and sold to investors, its process for screening out questionable loans, and its process for qualifying loan originators.
“Just on paper”. In an analysis in The New York Times, Nathaniel Popper said the $5.06 billion is “just on paper. He added, “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.”
More to conceal than reveal. Dennis Kelleher, the founder of the advocacy organization Better Markets, said, “The problem all along, with all of these settlements—and this one highlights it even more—is that they are carefully crafted more to conceal than reveal to the American public what really happened here—and what the so-called penalty is.”
Illusion of accountability. Robert Weissman, president of Public Citizen, noted, “The Department of Justice says this settlement will hold Goldman Sachs accountable. Unfortunately, that’s not so. Without criminal prosecution, there’s not even the illusion of accountability. This settlement, like others involving Goldman Sachs and the rest of the Wall Street perpetrators of the wrongdoing that led to the Great Recession, does virtually nothing to advance the objectives of deterrence, punishment or compensation for victims. The real message is, whether due to size, complexity or privileged access to politicians, Goldman Sachs and Wall Street remain above the law.”
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