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Thursday, 21 January 2016 00:00

Elizabeth Warren Denounces Travesty of Government "Settlement" With Goldman Sachs

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aaaaaaaaaaaaaaaaaelizabethwarren45Senator Elizabeth Warren may not be in the presidential debates, but she is essential to the debate on the pernicious activity and influence of Wall Street. (Photo: Edward Kimmel)

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Criticism of US government leniency on Wall Street legal transgressions is now being covered widely - even by trade publications such as the National Mortgage Professional Magazine. On January 18, the trade publication ran an article about Sen. Elizabeth Warren (D-Massachusetts) condemning the most recent US government settlement with a "too-big-to-fail" financial firm, in this case Goldman Sachs, for illegal abuse of the mortgage market:

Sen. Warren used her Facebook page to denounce the agreement, noting that the settlement sum was “barely a fraction of the billions investors lost” while arguing that Goldman Sachs was not properly penalized for its actions.

“That’s not justice – it’s a white flag of surrender,” she wrote. “It’s time to end this farce. These companies think they’re above the law – and too many government officials go along with them. A first step would be to pass the bipartisan Truth in Settlements Act to shine more light on these backroom deals. A second step would be to get government officials who have the backbone to fight back.”

Warren’s comments were echoed by the nonprofit U.S. Public Interest Research Group (U.S. PIRG).

The publication, which is geared toward professionals in the mortgage industry, also tellingly noted, "In announcing the [$5.1 billion] settlement, Goldman Sachs made no admission of guilt or error, and no executive from the New York-based financial giant will face criminal or civil charges." 

As we have noted in this space many times, the seemingly large financial penalties levied on Wall Street firms for illegal activity are not so large, in the context of those firms' budgets: The fines are generally less than the revenue that the firms generated by engaging in the often fraudulent practices in the first place. As The Huffington Post noted in a report on the recent settlement, 

About $2.4 billion of the settlement is in the form of a government penalty. The bank has said that it securitized about $125 billion of home loans between 2005 and 2008, of which about $23 billion eventually soured. The penalty represents about 10 percent of investors’ losses.

Goldman can deduct the rest of the settlement, about $2.7 billion, from its future tax bills, according to a person familiar with the accord. The bank said the settlement will reduce its fourth-quarter profit by about $1.5 billion. It reports earnings next week.

Goldman Sachs is being let off the hook for 90 percent of the investor losses for which it was primarily responsible. Furthermore, as is consistent with past settlements with Wall Street firms by the Department of Justice and other executive agencies, much of the fine is tax-deductible. As BuzzFlash has noted before, this rewards Wall Street financial companies by allowing them to factor in settlements with the government for illegal behavior as nothing more than the cost of doing business.

Former Attorney General Eric Holder, who left office last year to resume a six-figure-salary partnership at the DC corporate law firm of Covington & Burling (which defends many of the firms that Holder was responsible for prosecuting as attorney general), infamously stated to a US Senate committee in March of 2013:

I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute - if we do bring a criminal charge - it will have a negative impact on the national economy, perhaps even the world economy. 

Apparently, under current Attorney General Loretta Lynch, that legal exemption for too-big-to-fail financial firms and their executives has not changed.

Not to be reposted without permission of Truthout.