It pays to know the right people when it comes to most things in life, and this axiom cannot be said any better for the financial institution known as Goldman Sachs. Seven years ago, the bank that feeds executives into the highest levels of government and central banks should have gone bankrupt and disappeared like Bear Stearns and Lehman Brothers. But thanks to one of their own being in the position of U.S. Treasury Secretary, not only was the financial institution bailed out with taxpayer money, they also were the only bank to receive 100 cents on the dollar for their toxic assets tied with insurer AIG.
And now in 2016, regulators within the government have finally decided to make Goldman pay for their involvement in nearly bringing down the entire global financial system by quietly giving them a slap on the wrist, and imposing a meager $5.1 billion fine for their actions.
Ironic, then, that in the midst of this beginning-of-the-end of the 8 year long QE re-leveraging heroin binge we have news that seems to put a bow on the 2008 crisis: Goldman Sachs has announced that it has reached a $5.1 billion settlement as its wrist slap for participating in the wholesale swindle that was the subprime mortgage meltdown. The settlement breaks down into $2.385 billion in civil monetary penalties, $875 million in cash payments and $1.8 billion in consumer relief.
Here’s the kicker: the settlement is the largest in the bank’s history, but still small potatoes compared to some of its cohorts in crime who have already reached their settlements, such as Bank of America ($16.6 billion) and JPMorgan Chase ($13 billion).
For those who don’t remember the subprime mortgage meltdown and Goldman’s role in it (along with the other big banks), they intentionally blew up the housing bubble by creating Structured Investment Vehicles to keep mortgage backed securities and other risky investments off their main books. This allowed them to raise money on the commercial paper market at low interest rates and earn high interest rates by buying toxic subprime mortgage securities. Then they paid off the ratings agencies to AAA certify their toxic mortgage CDO garbage. - The International Forecaster
Goldman Sachs has a long history of being involved in several financial meltdowns in U.S. history, including the now infamous event of Shenandoah holdings which was the first recognized use of derivatives in Wall Street history. This implosion of the derivative markets in 1929 aided in bringing the nation into the Great Depression, and almost 80 years later they were central to ushering in the next depression under the title, the Great Recession.
It should come as no surprise that Goldman was only forced to pay barely over $5 billion for their role in the 2008 economic meltdown, since recent appointments to the Federal Reserve board involved two of their own over the past year. And now that the bank has evolved into a combined commercial and investment bank with the power to access unlimited capital from the Fed’s discount window, it is very unlikely that they will learn any lessons from this punitive punishment, and continue to risk speculative bets just as they did two other times over the past century.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.