As a penalty for its participation in activities that contributed to the real estate bubble and eventual financial meltdown in 2008, Goldman Sachs had been ordered to pay $5.1 billion. However, a closer look at the arrangement reached with the US shows that through government incentives and tax credits, Goldman can significantly lower its effective payment.
Acting Associate Attorney General, Stuart Delery stated that Goldman Sachs was being fined because of its misconduct of “falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail.”
Observersof the developmentsaid that Goldman actually got a good deal. David Kelleher, CEO of advocacy group Better Markets, said that “This settlement is a victory for Goldman.” He added that the headline amount is nothing but a PR stunt to mislead the public because Goldman could easily reduce the tag price.
The Justice Department stated that the breakdown of the $5.1 billion is $875 million in cash payments, $2.39 billion in civil penalty and $ 1.8 billion in consumer relief. State specific consumer relief allocates a minimum of $200 million for New York, $30 million for California and $16 million for Illinois. The consumer relief program must be completed by January 31, 2020.
Aside from the tax deductibility of the consumer relief payments, Goldman also negotiated special credits such as an enhanced early incentive credit that would give $1.50 worth of credit for every dollar spent on forgiveness of loans before November 30, 2016. Goldman would also get a significant 375% credit for every dollar given to financing and/or donations to fund affordable rental and forsale housing. This makes Goldman better off than JPMorgan Chase who only had $ 1.15 worth of credit for each dollar on forgiveness and no access to the affordable housing credit.
There has been complaints on the Justice Department’s treatment of Goldman. Kelleher explained that not only is Goldman given access to ways to make its payment smaller, it is also not required to return the “ill-gotten” gains it got from its actions, citing that the company’s net income in 2006 alone is $ 9.5 billion, and that employees who received bonus from Goldman during the period in question got to keep their bonus and walk away with no punishment.
Robert Weissman of Public Citizen added that, “Without criminal prosecution there’s not even the illusion of accountability. This settlement, like others involving Goldman Sachs and the rest of the Wall Street perpetrators of the wrongdoing that led to the Great Recession, does virtually nothing to advance the objectives of deterrence, punishment or compensation for victims.”
Findings on the investigation on Goldman Sachs showed that it publicly circulated information that it internally knew to be not true. This includes a bullish equity research report on Countrywide stock and a representation that of one of its underwriters, Fremont General Corp., was committed to loan quality over volume.