Recently, the Department of Justice announced that Goldman Sachs ?agreed to Pay More than $5 Billion in Connection with Its Sale of Residential Mortgage Backed Securities.? Close scrutiny reveals that Goldman will actually pay, for a number of reasons, $0.
Goldman?s Track Record:
We note that:
On April 28, 2003, Goldman Sachs was found to have aided and abetted efforts to defraud investors.
On September 4, 2003, Goldman Sachs admitted that it had misused material, nonpublic information that the US Treasury would suspend issuance of the 30-year bond.
On April 28, 2003, Goldman Sachs was found to have “issued research reports that were not based on principles of fair dealing and good faith .. contained exaggerated or unwarranted claims.. and/or contained opinions for which there were no reasonable bases “. .
On January 25, 2005, “the Securities and Exchange Commission announced settled civil injunctive actions against Goldman, Sachs & Co. relating to the firms’ allocations of stock to institutional customers in initial public offerings (IPOs) underwritten by the firms during 1999 and 2000 “.
On July 15, 2010, ?the SEC announced that Goldman paid $550 million to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.?
Our Track Record:
On July 3, 1993, we wrote to US Securities and Exchange Commissioner (SEC) Mary Schapiro to notify the Commission about the “Nigerian letter scam.”
We designed the first mortgage security backed by home mortgage loans to low and moderate income persons and originated by minority-owned institutions. (See: Security Backed Exclusively by Minority Loans, The American Banker Newspaper. Friday, December 2, 1994.)
We opposed the elimination of Glass=Steagall, a law that separated commercial from investment banks. The removal of this law contributed to the financial crisis, as we warned it would on September 23, 1998.
On June 15, 2000,we testified before the Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises (GSE?s) of the U.S. House of Representatives and suggested that GSEs Fannie Mae and Freddie Mac be subject to a Social Audit. Had the GSE?s been subject to this audit, certain flaws in their operation, including ethical shortcomings, would have been revealed earlier, in a better market in which to make corrections.
In 2001, we participated in the first wide scale home mortgage loan modification project. The Minneapolis-based effort helped 50 families victimized by predatory lending practices.
On December 22, 2003, we warned US regulators that statistical models he created using the proprietary Fully Adjusted Return? Methodology signaled the probability of system-wide economic and market failure.
In 2005, we served as an expert witness in a case that sought to hold Credit Suisse First Boston, Fairbanks/SPS, Moody?s and Standard and Poor?s, US National Bank Association, and other parties legally responsible for supporting and facilitating fraudulent subprime lending market activities. Had this single case been successful, we believe the credit crisis would have been less severe.
On December 22, 2005, we issued a strongly worded warning that system-wide economic and market failure was a growing possibility in a meeting at the SEC with Ms. Elaine M. Hartmann of the Division of Market Regulation.
On February 6, 2006, we again warned regulators that statistical models created using the proprietary Fully Adjusted Return? Methodology confirmed that system-wide economic and market failure was a growing possibility. We stated that: Without meaningful reform there is a small, but significant and growing, risk that our (market) system will simply cease functioning.?
On December 9, 2013, we filed a “Friend of the Court” brief in the United States District Court, Central District of California in an action that the U.S. Department of Justice brought against McGraw-Hill Companies, Inc., and Standard & Poor?s Financial Services LLC.
Why This Deal Matters
This deal has ramifications well beyond the parties to the case. It protects the monetary interest of a narrow set of mainly white persons, short-circuits the justice process, fails to protect the interests of both DOJ and the general public, does little to protect victims of other financial crimes, and damages the country’s long-term economic prospects.
Without an admission of guilt, transaction costs ? in the broad economic sense of the costs of participating in a market ? will increase in financial markets.
This deal continues a pattern of ineffective financial institution regulation and enforcement that is contrary to the public interest. It furthers the legal double standard that Black Lives Matters protesters highlighted when they castigated former President Bill Clinton for Hillary Clinton?s 1996 comments that some black youth were “superpredators.”
The financial crisis shows the real superpredators were firms with names like Goldman Sachs, Bear Stearns, Lehman Brothers and Wells Fargo. The fact that many of these superpredators also damaged and destroyed themselves (as superpredators have a tendency to do) is beside the point. Responsible enforcement would have prevented them from also damaging the global economy.
Given their record, Goldman?s license to do business should have been suspended (at the very least.) Clearly, they have compromised both New York Attorney General Eric Schneiderman and the DOJ.
This deserves federal judicial review.
(William Michael Cunningham is a University of Chicago-trained economist. A social investor adviser in Washington, he is the author of “The Jobs Act: Crowdfunding for Small Businesses and Startups.”)