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The News That Never Was: Goldman Sachs' $5 Billion Mortgage Fraud Settlement

Jan Lee headshotWords by Jan Lee
Investment & Markets
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Goldman Sachs, which just agreed to pay billions in penalties for its role in the 2008 housing crash, likely won't see too many reverberations on the stock exchange this month. It also won't face a plethora of questions from angry investors. That's because a substantial portion of the $5.1 billion in penalties that the feds say they've won on behalf of investors, taxpayers and homeowners won't really hit the banking giant's bottom line. It's only on paper.

"Buried in the fine print [of the agreement] are provisions that allow Goldman to pay hundreds of millions of dollars less — perhaps as much as $1 billion less — than that headline figure," writes Nathaniel Popper of the New York Times.

The 147-year-old company, which reported more than $8 billion in profits and $856 billion in assets in May 2015, stands accused of duping investors with risky mortgages just prior to the collapse of the housing bubble in 2008, and then betting on whether the housing market would take a sharp dive (which it did). In the eyes of critics like former California state treasurer, Phil Angelides, its actions should have earned the investment firm state and federal penalties as stupendous as its crimes.

Instead, by participating in a number of government programs and applying for tax credits, the company will end up saving money on what it will owe. And the agreement comes with a handy chart to help financial executives figure out just how much they will really pay.

But what is most concerning, Angelides says, is something that isn't factored into the agreement -- or the chart.

"[What’s] most troubling is that this settlement agreement – like previous deals between the Justice Department and big financial institutions – contains no consequences for the executives who drove or condoned wrongdoing," Angelides wrote in an op/ed for the Fresno Bee newspaper.

Consequence. That thing we must individually deal with when we miss a loan payment or come up short on our mortgage, Angelides says, doesn't apply to those who managed or oversaw the handling of the investment accounts at the time, because they aren't named individually in the investigation. The crime therefore isn't attached to their employment record and likely won't impact their reputation years after it happened.

As for Goldman Sachs' reputation, the stock market last Monday pretty much said it all.

"Goldman Sachs’ stock closed up the day the settlement was announced," Angelides noted.

Which might explain why the Internet also seems to have suffered a strange case of short-time memory loss. What truly sums up the social significance of an ethics controversy, I often find, is what is left in Google's search results when a debacle is over. Do news agencies continue to stoke debate over the issue with weeks of controversial postings on the topic? Does it become a Trump-versus-Clinton front pager for weeks on end? Do public officials chime in to condemn the agreement? Or do the allegations simply become smaller and smaller a few days later, replaced by more controversial news?

"Everyone Knows Why Hillary Clinton Won't Release Her Goldman Sachs Speeches," was this morning's top result in a Google News search for Goldman Sachs. It was followed by a more reflective topic, "Goldman's Blankfein Demands Deepest Cost Cuts in Years" and my favorite but less-significant lead: "Panama Papers: Kremlin Apologizes for Putin's Goldman Sachs Gaffe."

The Goldman Sachs case is the latest in a string of big-bank settlements from the housing crisis. Investigators, having done their job to bring prosecution to the public's attention, can now afford to let the topic die. Will the victims who lost their homes and investments in the housing crisis, however, feel that justice has been served with a settlement that measures penalty by the size of a negotiated tax and credit break? I'm willing to bet not.

Image credit: Flickr/Butz.2013

Jan Lee headshotJan Lee

Jan Lee is a former news editor and award-winning editorial writer whose non-fiction and fiction have been published in the U.S., Canada, Mexico, the U.K. and Australia. Her articles and posts can be found on TriplePundit, JustMeans, and her blog, The Multicultural Jew, as well as other publications. She currently splits her residence between the city of Vancouver, British Columbia and the rural farmlands of Idaho.

Read more stories by Jan Lee