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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

#61

Post by saiya-jin »

suprgeek wrote: post #30

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 be…

1) government encourages by all means available to them (=plenty) cheap, affordable loans to everybody, reasonable or not.

2) banks jump on the wagon, just as any other business would do having similar chance in their field

3) plenty of folks are plain math-stupid, lending as much as they can and trying even more for outright stupid reasons (ie TV, cars etc.) on top of other loans they already have, usually for housing

4) SHTF, since economy is never stable and we have cycles and whatnot

5) blame the banks, who cares about Clinton's administration allowing and pushing for this in first place. easy part.

the topic is of course more complex, ie derivative trading is/was in some cases pure evil, but that's another topic.

Btw, correct me if I am wrong, but wasn't the money just lended and now it's (being) paid back, maybe even with interest?

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

#62

Post by edelans »

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…

IMHO a reasonable use of this money should be to be spent to fix the problems that lead to this crisis.

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

#63

Post by forgetsusername »

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.

>As a quick refresher

Maybe this topic isn't fit for "quick" refreshers. Some problems are more nuanced and complex.

>these guys sold CDOs that they knew weren't priced correctly, obfuscated the mispricing

What does that even mean?

>then profited on short positions against the securities.

What is the crime?

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

#64

Post by forgetsusername »

tim333 wrote: post #12
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.

There should really be some way to punish the individuals responsible, even just a fine comparable to the bonuses they made, rather than just having their employer pay compensation while those responsible continue to get richer.

>There should really be some way to punish the individuals responsible

Honest question: do reasonable really look at the The Great Recession and think that there are "individuals" wholly responsible for what happened?

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

#65

Post by forgetsusername »

nl wrote: post #39
VeilEm wrote: post #18

Earlier quoted context omitted.

> 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.

They were hiding the risk, both from the purchases and the ratings agencies. BUT - and this is pretty important - the ratings agencies were negligent in their rating methodology. Intelligent buyers could see the problems. The book The Big Short covers this in some detail.

>They were hiding the risk

Please explain how they were "hiding" the risk.

Risk is unknown ex ante. Nobody knows the value of it. It is the responsibility of those buying the risk to have an estimate and price the security accordingly, ahead of time.

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

#66

Post by Lazare »

manuelflara wrote: post #55
isnullorempty wrote: post #54

Earlier quoted context omitted.

But an investment bank alone can still be too big to fail, it's about the contagion effect caused by the banks being deeply intertwined with each other.

I think the key issue is that, if an investment bank fails and takes all of its investors money with it, well that's kind of like a startup failing. Investors know the risk. But right now, if a bank fails due to its bad investments, it can take the money / deposits / savings of many, many people that did not take any risks with their money.

> But right now, if a bank fails due to its bad investments, it can take the money / deposits / savings of many, many people that did not take any risks with their money.

This is not something which occurred during the GFC. We saw:

1) A significant number of pure retail banks making bad home loans, failing, and losing their depositors money. (Eg, Countrywide.)

2) A small number of pure investment banks (or in one famous case, an insurance company) getting on the wrong side of volatile markets or making exotic bets that went bad, and losing their investors money. (Eg, Lehman.)

3) A number of diversified banks which got into trouble on one side or the other, but were able to weather the storm without significant losses. (Eg, Citi.)

What we did NOT see is any large banks which got into trouble on the investment side, and lost money on the deposit side.

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

#67

Post by Lazare »

edelans wrote: post #57

Am I the only one finding it odd that the company who has triggered a global financial crisis is paying a fine to the US ???? The damage spread far outside US borders ! I would rather see this fine paid to a global organisazion, like the IMF ( https://www.imf.org/external/np/exr/facts/finfac.htm ).

> the company who has triggered a global financial crisis

I'm hardly a defender of Goldman, but that's a bizarre characterization.

What do you think Goldman did to cause RBS's failures, exactly?

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

#68

Post by Ntrails »

jevgeni wrote: post #46
suprgeek wrote: post #30

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 be…

Could you elaborate on the multi-billion gov't subsidies to GS?

"Oh Shit. Banks are in trouble. Lets offer them emergency capital so they can make it through the year.

GS uses the capital to buy government bonds with governments own money to make literally riskless profit."

I have zero sources for this, so if I'm wrong please say

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

#69

Post by nl »

forgetsusername wrote: post #65
nl wrote: post #39

Earlier quoted context omitted.

They were hiding the risk, both from the purchases and the ratings agencies. BUT - and this is pretty important - the ratings agencies were negligent in their rating methodology. Intelligent buyers could see the problems. The book The Big Short covers this in some detail.

> They were hiding the risk Please explain how they were "hiding" the risk. Risk is unknown ex ante. Nobody knows the value of it. It is the responsibility of those buying the risk to have an estimate and price the security accordingly, ahead of time.

Please explain how they were "hiding" the risk.

They mixed mortgages which were extremely unlikely to be repaid into packages with enough AAA rated mortgages so that they would meet the credit-rating agencies policy of rating mixed packages as AAA if a certain proportion were AAA.

However, these bonds would be valueless if any of the securities that made them up defaulted.

They sold the packaged bonds a AAA-rated securities without disclosing the likelihood that they would default.

Yes, this was stupid of the ratings agencies

Yes, the buyers should not have bought things they didn't completely understand.

But GS deliberately obfuscated the nature of what they were selling.

Risk is unknown ex ante.

That isn't entirely true. On this example specifically, it's pretty easy to see that if a household can just afford mortgage payments at a discounted rate it is pretty likely they won't be able to afford it when the discounted rate expires.

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

#70

Post by isnullorempty »

manuelflara wrote: post #55
isnullorempty wrote: post #54

Earlier quoted context omitted.

But an investment bank alone can still be too big to fail, it's about the contagion effect caused by the banks being deeply intertwined with each other.

I think the key issue is that, if an investment bank fails and takes all of its investors money with it, well that's kind of like a startup failing. Investors know the risk. But right now, if a bank fails due to its bad investments, it can take the money / deposits / savings of many, many people that did not take any risks with their money.

That's assuming investment banks and retail banks aren't connected by being counter-party to each other on all number of contracts. You saw when Lehman failed it almost took out the financial system and banks, insurance companies etc all had to be bailed out.
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