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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

#91

Post by yummyfajitas »

wavefunction wrote: post #80
Lazare wrote: post #66

Earlier quoted context omitted.

> 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 Billi…

1) Countrywide was a bank, later a thrift, which providing financial services (mortgages, insurance) to retail customers. That's pretty much the definition of a retail bank.

2) AIG was not doing anything that Glass-Steagall would prevent. The fact that your 20/20 hindsight says it created a systematic risk doesn't change this.

3) Citi received $20B in TARP money, and paid it back quite rapidly. It's unknown how much in needed - many banks were forced to take unnecessary money in order to prevent identification of which banks were in trouble.

Also, why do you believe that preventing Citi from mixing retail and investment banking together would have prevented the (hypothetical multiple pieces of) city from requiring $20B?

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

#92

Post by whatok »

RobertoG wrote: post #84
saiya-jin wrote: post #61

Earlier quoted context omitted.

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 housi…

I don't get it. How government encouraging something free a business of their responsibility of lending money following good business practices? How is derivatives another topic? Is not this the real problem? The money could be paid back, but, as in any investment we should take into account the opportunity cost of that investment. Instead of helping people they are saving banks. Is not there a very strong moral haza…

It doesn't free a business of responsibility but if political pressure is put on regulators to treat companies differently depending on whether they played ball, it amounts to about the same thing.

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

#93

Post by RobertoG »

whatok wrote: post #92
RobertoG wrote: post #84

Earlier quoted context omitted.

I don't get it. How government encouraging something free a business of their responsibility of lending money following good business practices? How is derivatives another topic? Is not this the real problem? The money could be paid back, but, as in any investment we should take into account the opportunity cost of that investment. Instead of helping people they are saving banks. Is not there a very strong moral haza…

It doesn't free a business of responsibility but if political pressure is put on regulators to treat companies differently depending on whether they played ball, it amounts to about the same thing.

Do you have any example of that happening?

Even if this is the case, if my business is a bank, how can I forget about risk assessment just because I could get treated differently by regulators? Is it not my duty to think in what will happen in the next recession? would not be the best action to initiate legal complains? do you know of any legal action initiated by banks because of that?

It seems to me that the simplest explanation is greed.

Somehow, after all we have seen, we try to exculpate the business and throw the guilt in the government. It's a little tiresome.

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

#94

Post by Lazare »

wavefunction wrote: post #80
Lazare wrote: post #66

Earlier quoted context omitted.

> 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 Billi…

In the context of Glass-Steagall:

1) Countrywide's primary business was mortgage lending, and it would have fallen on the retail side of the Glass-Steagall wall.

2) AIG had no retail banking, and would have fallen on the non-retail side of the wall.

3) Citi did not require the funds; banks were required to take TARP funds whether they needed them or not in order to avoid giving recipients a stigma. It later became clear that Citi (like other large integrated banks) did not need the funds, and they repaid them in full, with interest.

I'm not sure what point you're trying to make. The Glass-Steagall wall split banks up into the kind of retail bank that fell over during the GFC and the kind of non-retail bank that ell over during the GFC, and banned the kind of integrated banks which survived the GFC. It would not have stopped either what Countrywide did, nor what Lehman did; it would have stopped what Citi did. Do you dispute any part of that?

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

#95

Post by saiya-jin »

RobertoG wrote: post #93
whatok wrote: post #92

Earlier quoted context omitted.

It doesn't free a business of responsibility but if political pressure is put on regulators to treat companies differently depending on whether they played ball, it amounts to about the same thing.

Do you have any example of that happening? Even if this is the case, if my business is a bank, how can I forget about risk assessment just because I could get treated differently by regulators? Is it not my duty to think in what will happen in the next recession? would not be the best action to initiate legal complains? do you know of any legal action initiated by banks because of that? It seems to me that the simple…

I'll try to cover both of your posts - government stimulates lending by lowering interest rates for example. This was caused by general initiative of that government to get cheap loans to people, and it was effective. I am not aware of any more direct pressure to the lenders, which doesn't mean there wasn't some.

Derivates being another topic - just to topic of people getting loans beyond their means, overall it's the same crysis topic, and I think we agree that there is no good justification from banks for this part.

Why banks were saved - apart from dirty business of bribery and lobbying which is sad daily part of political existence, there is part about something along: john doe has some money in the bank, this bank goes bust, and he loses it all. There is a chance of getting some % of it in future in settlements, but nothing guaranteed. In that situation, no politician would willingly go there if they can avoid it. It's too easy to start pointing on them, and everybody takes it badly if they lose money because of somebody else's mistake.

What happened in the banks - bonuses, based only on last year's performance. Source of a good deal of evil roaming banking (and trading too). It means many pushing for short-term gains, not caring about broader or longer effects. People are clever, they want to maximize their own gain within boundaries set, and these things are set like this. Nobody works in banking for the passion for the job, everybody is in for the money involved, and an occasional feel of some power/influence (however pathetic this is, some people are wired like that).

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

#96

Post by AmirS2 »

The $1.8 billion in consumer relief is not actually a penalty, since most of it is money that has already been lost, and is only being recognised now under the pretence of it being a penalty.

> "The consumer relief will be in the form of principal forgiveness for underwater homeowners and distressed borrowers; financing for construction, rehabilitation and preservation of affordable housing; and support for debt restructuring, foreclosure prevention and housing quality improvement programs, as well as land banks."

The principal forgiveness had to happen anyway in the normal course of business, one way or another. If underwater homeowners and distressed borrowers owe you a billion dollars, that does not mean that those mortgages and loans are worth a billion dollars in reality. At best you can realistically hope to eventually be repaid 60% of that (to pick an arbitrary number), given that these are distressed borrowers we're talking about. So writing down those assets in your books to e.g. $600 million dollars does NOT constitute a penalty or consumer relief of $400 million, since your assets were not really worth a billion to begin with and probably haven't been for years.

Same for the rest of the "relief", for example foreclosure prevention is almost always a net positive for the lender. Finding a way for the owner to stay in the house, look after it, and keep repaying whatever they can afford, will usually recoup more money for the bank than a distressed sale at auction (how foreclosed properties are usually sold).

Principal relief for homeowners who are above water and up to date with mortgage payments, now that would be an actual penalty

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

#97

Post by HCIdivision17 »

jevgeni wrote: post #76
Ntrails wrote: post #68

Earlier quoted context omitted.

"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 implic…

I really like your explanation, and especially the final analogy. Sets the tone that we should be concerned with figuring out why all those factories are burning down. That shouldn't happen naturally. But you would generally not get in the way of the fire trucks putting the fired out: urgent and immediate help is needed, even if it's costly. Besides, the bill gets sent to the company in the end.

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

#98

Post by shrewduser »

jevgeni wrote: post #48
shrewduser wrote: post #33

Earlier quoted context omitted.

there's no difference. they weren't priced correctly is a perfectly reasonable thing to say, and synonymous with they lied about their level of risk.

CDO's are huge and complicated deals. All the little details are documented in the prospectus. Granted it's 700 pages long on average, but maybe people shouldn't be buying 2-3 billion USD securities if they don't have the capacity to understand and model them properly.

there aren't many humans who can grok that kind of info and truly understand it, that's why they were supposed to be rated accurately by ratings agencies.

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

#99

Post by enraged_camel »

forgetsusername wrote: post #82
mtgx wrote: post #72

Earlier quoted context omitted.

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…

> it's absolutely criminal that virtually nothing has changed in how these companies operate Except that this is simply not true if you've been paying attention beyond the populist headlines.

Can you give some concrete examples of what has changed in their modus operandi? Preferably with citations,but I won't even hold you to that.

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

#100

Post by Laaw »

pak wrote: post #22
hueving wrote: post #21

Earlier quoted context omitted.

>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 distre…

No one said or implied any of what you're saying. Did we or did we not get more money back from the banks than we gave? That was the question, and the answer was we did.

No one's making value judgements about that, it's just a statement of undeniably true fact. That is the literal definition of profit, and the US government made a profit on the loan.

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