Beware of banks cutting deals with the Feds to avoid prosecution

15 April 2016 2:55 pm

The big story last week was Goldman Sachs being forced to pay $5.06bn for deceiving investors and contributing to 2008 financial crisis. The settlement was brokered by several state attorneys general as well as the feds,


As far as bringing Goldman Sachs into line, the penalty was as useless as a concrete parachute. It coincided with Goldman Sachs reporting first quarter revenues of $7 billion and paying out some $12.7 billion in compensation. No one would have felt the impact of that penalty.

Basically, Goldman Sachs lied – a lot – to investors. Goldman Sachs repeatedly sold mortgage risk to investors by claiming that it was making sure these mortgages were being written according to strict rules – even when it knew that they weren’t. That’s fraud, pure and simple.

The settlement does not include any confession of legal wrongdoing,but includes “a statement of facts to which Goldman has agreed.” That’s code for saying its high-priced lawyers aggressively negotiated each and every word.

And the settlement itself was ridiculous. According to the New York Times, Goldman Sachs could pay up to $1 billion less than advertised, because it got extra credit for spending in certain hard-hit communities or for meeting its obligations within the first six months. The settlement's fine print stipulates that the bank will receive a $2 tax credit for every dollar it spends in that area. So basically US taxpayers continue to subsidise Goldman Sachs.

Every single individual at Goldman who received a bonus from this illegal conduct not only keeps the entire bonus, but suffered no penalty at all. Also, half of that $5 billion is tax deductible so US taxpayers have to subsidise the settlement.

The reality is that over the last few years banks, have paid an estimated $200 billion in fraud fines and settlements. And it still continues? How many settlements, how many billions, will it take to convince law makers that there is an epidemic of fraud on Wall Street and that we need something more effective.

If individual bankers went to jail, that would be a start. It would send a signal to Wall Street that this sort of behaviour will not be tolerated.

Instead what we see is the Department of Justice colluding with the banks.