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Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims

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Re: Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims

#21

Post by hueving »

pak wrote: post #19
Laaw wrote: post #16

I mean, we gave them loans, not free money, right? The American people profited in a literal sense on the bailout.

Sure, it was a loan--that no other financial institution could have dared to make, thereby making the expected interest rate on the open market for such a loan much higher than whatever accounting tricks are used today to determine that the government turned a "profit." Furthermore, the loans involved the government purchasing financial instruments that were basically impossible to value fairly [1], because much of i…

>whatever accounting tricks are used today to determine that the government turned a "profit."

The government got back more money than it loaned out? Does that qualify as an accounting trick now?

Re: Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims

#22

Post by pak »

hueving wrote: post #21
pak wrote: post #19

Earlier quoted context omitted.

Sure, it was a loan--that no other financial institution could have dared to make, thereby making the expected interest rate on the open market for such a loan much higher than whatever accounting tricks are used today to determine that the government turned a "profit." Furthermore, the loans involved the government purchasing financial instruments that were basically impossible to value fairly [1], because much of i…

>whatever accounting tricks are used today to determine that the government turned a "profit." The government got back more money than it loaned out? Does that qualify as an accounting trick now?

Is the fair market value for the interest rate on a loan really that abstract? This must be why with the simplest rhetorical flourishes, the financial industry can convince people that their hundreds of millions in lobbying dollars are well spent on regulation that protects average Americans. An interest rate has to incorporate size of the loan, expected term of the loan, and risk of default (recall these were distressed banks), among other things.

Here's an accounting trick for you. Why don't you give me a $1000 loan for twenty years, and since you don't know me, the risk of default is, let's say, pretty high. I'll repay you $1001 in 2036—heck, just to be generous, I'll do it in inflation-adjusted dollars. When I do that, I will be happy to have you tell me about the "profit" that you made off of your investment.

Re: Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims

#23

Post by cookiecaper »

>The firm said it will pay a civil monetary penalty of $2.385 billion, a cash payment of $875 million and $1.8 billion in consumer relief

Where is that $3.26 billion of cash going? I know you're going to say the SEC, the DOJ, or some other [combinations of] government entity. I get that. But then where does it go? It seems that people often forget that when this happens, there's still a human that sees a $3.26 billion uptick in the amount of money he controls (though it's possibly divided between branches/depts).

What does that guy do with it? Build a (few dozen) new office building(s)? Hire 10k more employees for the agency that employs him (only 50 of which are his family and friends collecting 250% of their market rate)? Does he keep it in a bank account and collect interest on it? Send it into a black hole somewhere in the Treasury so that it can help pay off "the national debt"? Spend it on contractors? Bonuses for himself and the other people who helped "take the bad guys down"? Motorboats? Yachts?

People act like it's just an inherent truth that fined money is better off on a bureaucrat's desk than a banker's. Is that really real life?

Re: Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims

#24

Post by e12e »

melling wrote: post #17
e12e wrote: post #14

So a quick google search turned up this: "Overall, Goldman Sachs received a $12.9 billion payout from the government's bailout of AIG, which was at one time the world's largest insurance company." [1] Now, these might be related, but [not] identical - or indeed not connected - but on the face of it it seems rather outrageous... perhaps someone who's a bit more up on the details can comment? [1] http://usatoday30.usat…

When the government bailed out AIG, everyone who was owed money by AIG got paid. Is there more to the story? We seem to revisit the crisis on HN. Someone should do a write up. We seem to rehash a lot of this. Basically , history just repeating itself. TARP, for example, being a loan: https://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Progra...

From the USA Today article above, along with this story here, it would seem that government bailed out AIG, which benefited Goldman and a lot of financial institutions that really should have been in a position to "know better", and be prepared to take the loss themselves, while Goldman will happily make sure small home-owners go bankrupt. Or put another way, government pays Goldman 12 Billion for not knowing their business, and Goldman grudgingly passes on 2 billion in consumer relief.

That's a pretty sweet deal for Goldman?

Does remind me to keep "Swimming With Sharks" on my reading list:

http://www.amazon.com/Swimming-Sharks-Journey-World-Bankers-...

(I assume the Book has more along the lines of what's in this interview/promo-piece):

http://www.theguardian.com/business/2015/sep/30/how-the-bank...

Re: Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims

#25

Post by javajosh »

ksar wrote: post #8

As a quick refresher, these guys sold CDOs that they knew weren't priced correctly, obfuscated the mispricing, and then profited on short positions against the securities. Took 7 years to settle for being straight up crooks. Still the Wild West out there.

The remarkable thing is that people still do business with Goldman. Why didn't the CDO debacle undermine people's trust in that firm? Isn't this a complete failure of the market?

Re: Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims

#26

Post by deciplex »

VeilEm wrote: post #18
ksar wrote: post #8

As a quick refresher, these guys sold CDOs that they knew weren't priced correctly, obfuscated the mispricing, and then profited on short positions against the securities. Took 7 years to settle for being straight up crooks. Still the Wild West out there.

> that they knew weren't priced correctly Things are priced at what they will sell for. It's more that they were hiding information about the risk (which of course would have drastically lowered the value and the price people would be willing to pay). I think the difference is significant, however.

Can you expand on the significance of this difference? I guess you're asserting that the "correct price" is the one that someone will pay for it, and that something is only "incorrectly priced" if no one will buy it. But the point is precisely that no one would have bought these goods for the indicated price had GS not obfuscated what they were selling in the first place. It seems to me that you're really splitting hairs.

Re: Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims

#27

Post by marklgr »

ksar wrote: post #8

As a quick refresher, these guys sold CDOs that they knew weren't priced correctly, obfuscated the mispricing, and then profited on short positions against the securities. Took 7 years to settle for being straight up crooks. Still the Wild West out there.

> Still the Wild West out there.

Strangely enough, it is both a kind of freedom ideal to some, and an unfair, immoral and violent dog-eat-dog society for other.

Re: Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims

#28

Post by deciplex »

cookiecaper wrote: post #23

>The firm said it will pay a civil monetary penalty of $2.385 billion, a cash payment of $875 million and $1.8 billion in consumer relief Where is that $3.26 billion of cash going? I know you're going to say the SEC, the DOJ, or some other [combinations of] government entity. I get that. But then where does it go? It seems that people often forget that when this happens, there's still a human that sees a $3.26 billio…

Do you have a better idea? It sounds like you're trying to make a "taxes are theft" argument against fines for committing theft which is pretty hard to take seriously.

Re: Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims

#29

Post by ksar »

javajosh wrote: post #25
ksar wrote: post #8

As a quick refresher, these guys sold CDOs that they knew weren't priced correctly, obfuscated the mispricing, and then profited on short positions against the securities. Took 7 years to settle for being straight up crooks. Still the Wild West out there.

The remarkable thing is that people still do business with Goldman. Why didn't the CDO debacle undermine people's trust in that firm? Isn't this a complete failure of the market?

Partly because this wasn't Goldman specific behaviour. Those participating were systemically important financial institutions. In 2008, credit markets/money markets completely froze up and banks wouldn't lend to one another, precisely because trust had been eroded. No one had a clear view on the extent to which financial counterparties were exposed.

Re: Goldman Sachs Will Pay $5B to Settle Financial-Crisis Claims

#30

Post by suprgeek »

So the company that was one of lead bad actors in a global crisis that wiped out lots of little folks gets -

No execs (or anybody else) go to Jail

Continues to do business as usual

Pays a small fraction of its profits in fines (but gets to keep the multi-billions of tax-payer money under various govt. programs)

Admits to no wrong doing

Basically a speeding-ticket that gets dismissed when you pony up the cash after being caught drunk driving with dead body stuck on your fender.

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