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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

#71

Post by nl »

Lazare wrote: post #67
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?

RBS bought subprime mortgage backed securities - the same ones that were (mostly) created by Goldman[1].

RBS (along with most buyers) didn't realize that the AAA-rated securities they bought were actually subprime-backed (because of completely stupid rules by the ratings agencies, which Goldman exploited)

When people suddenly discovered what a disaster these were, RBS wrote down £5.9bn, and was forced to seek additional capital[2].

RBS was responsible for heir own fate of course. But Goldman sure made money out of it.

[1] http://www.telegraph.co.uk/finance/recession/5025115/RBS-tra...

[2] http://news.bbc.co.uk/2/hi/business/7096845.stm

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

#72

Post by mtgx »

forgetsusername wrote: post #64
tim333 wrote: post #12

Earlier quoted context omitted.

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?

I think the problem is not "we can't find anyone who did wrong here", but "there are so many who cheated people that we wouldn't know where to start, or we'd have to arrest thousands - so we might as well do nothing about it".

Regardless of punishing those guilty or not (which I think they should be), it's absolutely criminal that virtually nothing has changed in how these companies operate, and that the "too big to fail" companies continue to remain too big to fail. The next time these banks crash - and they will crash - the taxpayers will have to bail them out in the trillions of dollars.

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

#74

Post by rayiner »

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…

My dad was heavily invested in NASDAQ-listed stocks and lost half his 401k in the 2000 crash. Who on Sand Hill Road should be in prison right now?

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

#75

Post by rayiner »

oceanstone wrote: post #41
tn13 wrote: post #35

Earlier quoted context omitted.

And interestingly almost all politicians of all hue and color and with capacity to do something seem to be siding with them.

Bernie Sanders wants to break up the banks that took bailout money, creating smaller banks that are no longer "too big to fail." What are people's thoughts on this proposal?

In an industry-wide crash, as was the case in 2008, it doesn't really matter whether a dozen smaller banks fail or a few bigger ones do. And on the flip-side, big banks are a lot more efficient than small ones, for the same reason Wal-Mart and Amazon are more efficient than mom-and-pop stores. Everyone loves to hate Amazon, but who wants to go back to the days before same-day drone delivery? Similarly, who wants to go back to the mortgage rates that existed before big banks and securitization?

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

#76

Post by jevgeni »

Ntrails wrote: post #68
jevgeni wrote: post #46

Earlier quoted context omitted.

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

I think you mean the TARP/TALF programs.[1] They were loans with very specific conditions and costs. Meaning banks had to pay interest on those loans to the U.S. government, which was definitely above the U.S. government interest rates. As far as I remember, Goldman was one of the first Wall Street banks to pay those loans back (including interest). The programs ended up being profitable to the Treasury and by implication, the American tax payer. See the linked website for more details.

The reason some banks started using the money from those programs to buy up government debt, is to make their books more solid, or in other words, make the money market believe that they won't go bankrupt any time soon and start lending them money again. For example, if I have $5000 and bet all of it on horse races, and then immediately ask you to loan me $100 more, you'd be sceptical. If, on the other hand, I bet $2500 on horse racing, put the other $2500 in a deposit box, and ask you to loan me $100 for cab fare, the deal would seem a bit more solid, right?

There is another argument, that international banks profited hugely from the AIG bailout, and that the bankers were unprofessional for not foreseeing a possible AIG collapse. That is only partially true. Yes, the bailout money allowed AIG to honour its contracts with the banks.

But AIG was an insurance company and the things it sold to banks (Credit Default Swaps) were insurance against selected companies going bust. For example, if I loan Apple 50 billion dollars, I want to insure the whole deal for the very slim chance Apple goes bust. In 2008 a lot of companies started to go bust, hence AIG had to pay out a lot. So much, in fact, that it would go bankrupt.

If I change the words, and say that American machinery manufacturers insured their factories against possible fires with insurance company A, but due some freak accident all the factories started burning, so the government had to step in and bail out company A, so they could pay out the insurance policies. Doesn't seem so preposterous, does it?

___

[1] - https://www.treasury.gov/initiatives/financial-stability/TAR...

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

#77

Post by imgabe »

rayiner wrote: post #75
oceanstone wrote: post #41

Earlier quoted context omitted.

Bernie Sanders wants to break up the banks that took bailout money, creating smaller banks that are no longer "too big to fail." What are people's thoughts on this proposal?

In an industry-wide crash, as was the case in 2008, it doesn't really matter whether a dozen smaller banks fail or a few bigger ones do. And on the flip-side, big banks are a lot more efficient than small ones, for the same reason Wal-Mart and Amazon are more efficient than mom-and-pop stores. Everyone loves to hate Amazon, but who wants to go back to the days before same-day drone delivery? Similarly, who wants to g…

If there's a dozen\* small banks it seems less likely that they would all fail at the same time than if there's only three humongous banks. Diversity and all that. Hence, we could limp along with 6/12 small banks rather than being screwed and having no financial system if all 3 major banks go belly up.

\* Specific numbers obviously made up for illustrative purposes only.

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

#78

Post by yummyfajitas »

nl wrote: post #69
forgetsusername wrote: post #65

Earlier quoted context omitted.

> 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 sec…

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.

There is no such thing as a AAA mortgage. AAA is a rating for bonds and other fixed income securities.

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

This is not how a CDO works.

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

Why don't you show us the CDO prospectus you allege doesn't do this? Once you produce it, I'll show you the exact (mandatory) table where it's done.

https://en.wikipedia.org/wiki/Collateralized_debt_obligation

Your comment is the financial equivalent of "The NSA is hacking my pixels in order to break the rot13 encryption." The words kind of suggest computing/finance, but anyone who knows what the words mean recognizes that the content is nonsense.

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

#79

Post by yummyfajitas »

imgabe wrote: post #77
rayiner wrote: post #75

Earlier quoted context omitted.

In an industry-wide crash, as was the case in 2008, it doesn't really matter whether a dozen smaller banks fail or a few bigger ones do. And on the flip-side, big banks are a lot more efficient than small ones, for the same reason Wal-Mart and Amazon are more efficient than mom-and-pop stores. Everyone loves to hate Amazon, but who wants to go back to the days before same-day drone delivery? Similarly, who wants to g…

If there's a dozen\* small banks it seems less likely that they would all fail at the same time than if there's only three humongous banks. Diversity and all that. Hence, we could limp along with 6/12 small banks rather than being screwed and having no financial system if all 3 major banks go belly up. \* Specific numbers obviously made up for illustrative purposes only.

That's true if bank failures are uncorrelated, which is so far from reality as to be an irrelevant assumption.

If this were true, then the US banks should have weathered the financial crisis far better than Canada's (highly consolidated). That's the complete opposite of reality.

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

#80

Post by wavefunction »

Lazare wrote: post #66
manuelflara wrote: post #55

Earlier quoted context omitted.

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 fam…

1) Countrywide was not a retail bank.

2) The Insurance company you allude to is likely AIG, who decided to provide industry wide insurance for the CDO which were themselves intended to distribute risk, which basically de-distributed the risk by rolling it up under their own single company. Lehman Brothers was a victim of apparent politics as to why they weren't bailed out while others were?

3) Citi required $20 Billion in taxpayer assistance via TARP. I don't know about you but that doesn't sound like weathering the storm.

I don't think you really understood what happened or have a very clear idea of the facts of the situation given your stated points.

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