GS Settlement vs FinReg: Which is More Significant?
By Barry Ritholtz - July 16th, 2010, 9:15AM
I’ll be back in a minute, but it dawns on me that the Goldman Sachs settlement may actually be the more important development than the milquetoast Financial reforms.
~~~
UPDATE: July 16, 2010 10:33am
Ezra Klein makes the case in the Washington Post that FinReg, while not Wall Street Reform, is good enough to stand on its own as a significant legislative improvement:
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July 16th, 2010 at 9:25 am
Agreed, although the settlement is mild compared to GS’s earnings. Only a fraction of the bonuses it paid out with our money. Bloomberg says it’s only 14 days of profit.
Nevertheless getting GS to cry uncle means no one is quit safe.
July 16th, 2010 at 9:33 am
There’s no criminal conviction. The amount is about a half month of Goldie income and the impact on SHAREHOLDERS is about 1 Dollar per share. The impact on the bonus pool is NIL. So the impact on Lord Blankfein and the crew is NIL. What pain? As opposed to What pain!!!
July 16th, 2010 at 9:39 am
the most significant in all this is that all 3 “pro little guy” Dems on the commissions voted to approve this pathetic surrender to the Street, and both “pro business” Republicans voted against !!!
is there anyone who’s still unconvinced that
a) SEC independence from WH is a joke?
b) Dems **really** miss those campaign contributions
c) that 30yr old ex-goldman COO of the enforcement division will pretty soon run the whole SEC?
(just as ex-goldman crew runs Treasury and NY Fed)
July 16th, 2010 at 10:07 am
I think the issue is that it’s like handing a mugger the $10 in your wallet AND the key to your back door. (though whether you think the govt or GS is the real mugger is up for debate).
Precedent is a powerful thing, even if it’s only a settlement.
July 16th, 2010 at 10:43 am
As a non-lawyer and possibly the worst investor on the planet, any comment I make should generally be considered a question. But expensive as they are, you can pay lawyers for a long time with $550,000,000.00 Hence I would think that GS spending that amount of money to avoid a civil trial (which I’m sure we were told was certain to exonerate it) would have plaintiffs’ attorneys everywhere waxing regal hard-ons (I only minored in English, so maybe it should be hards-on.)
July 16th, 2010 at 10:53 am
Financial Reform is still a work in progress. For example, HuffPo is reporting that Geithner is opposed to appointing Elizabeth Warren as head of the new consumer protection agency at the Fed:
http://www.huffingtonpost.com/2010/07/15/tim-geithner-opposes-nomi_n_647691.html
I say bring the lady in and let’s watch the fur fly!
July 16th, 2010 at 10:54 am
Considering that both the settlement and the financial regulations had as their basis the political zeitgeist of the day, I’d say they are similar in origin and effect. The politics for a single settlement is far less messy than for a 2,300 page behemoth bill that claims (pretends) to represent an overhaul of the US financial system. But before anyone begins thinking that the settlement necessarily represents a new legal standard by judicial or regulatory fiat, they should keep in mind how easy it is to draw distinctions among cases on the basis of slightly different facts. The settlement may represent a new legal standard, but if it does, it will be because it represents the first instance of SEC prosecution (persecution?) in a massively-shifted political landscape.
July 16th, 2010 at 10:59 am
“GS Settlement vs FinReg: Which is More Significant?”
______________
A more important question might be why neither is substantially significant in the scheme of things.
The levels of fraud involved in the now pseudo-governmental financial “industry” are pervasive. If the fraud is ever allowed to unwind (as opposed to unwinding the bad debt the banks and shadow banks have created, which is fairly easily taken care of in a fiat monetary system with unquenchable demand for QE and an incestuous relationship between the banks and the Treasury), the entire basis for our economy would come crashing down. The courts would be backlogged with criminal fraud cases involving privileged class, and trials would reveal criminal connections so profoundly entwined that we’d need to try the accused in groups (we’d also probably have a hard time finding unindicted judges).
Not that those things shouldn’t happen.
But they won’t. The system will not indict, regulate, or govern itself. We have, or had recently had, very good regulations that served us well. Those that were not legislated away or replaced by industry-authored licenses to steal, went unenforced. So, GS pays a fine and admits to nothing. Fab will be the goat. Paulson will be unscathed. This time it will be different. Right.
GS Settlement vs FinReg?
We won’t see the first move towards meaningful regulation or penalties that that take from the culpable more than they netted from the crime (and some harsh jail time), until the increasingly homeless, unemployed, and disenfranchised middle class begin rioting in the streets.
’Til then, I hear the new Leonardo DiCaprio film is pretty good.
I expect the results of the GS settlement to be about as serious as the Tobacco settlement. Somebody got some money to forever look the other way. Big whoop.
July 16th, 2010 at 11:02 am
Bruman Says:
“Precedent is a powerful thing, even if it’s only a settlement.”
_____________
The SCOTUS (and thus, the lower courts) disagrees with your assessment of the power of precedent.
July 16th, 2010 at 11:04 am
“GS Settlement vs FinReg: Which is More Significant?”
______________
A more important question might be why neither is substantially significant in the scheme of things.
The levels of fraud involved in the now pseudo-governmental financial “industry” are pervasive. If the fraud is ever allowed to unwind (as opposed to unwinding the bad debt the banks and shadow banks have created, which is fairly easily taken care of in a fiat monetary system with unquenchable demand for QE and an incestuous relationship between the banks and the Treasury), the entire basis for our economy would come crashing down. The courts would be backlogged with criminal fraud cases involving privileged class, and trials would reveal criminal connections so profoundly entwined that we’d need to try the accused in groups (we’d also probably have a hard time finding unindicted judges).
Not that those things shouldn’t happen.
But they won’t. The system will not indict, regulate, or govern itself. We have, or had recently had, very good regulations that served us well. Those that were not legislated away or replaced by industry-authored licenses to steal, went unenforced. So, GS pays a fine and admits to nothing. Fab will be the goat. Paulson will be unscathed. This time it will be different. Right.
GS Settlement vs FinReg?
We won’t see the first move towards meaningful regulation or penalties that that take from the culpable more than they netted from the crime (and some harsh jail time), until the increasingly homeless, unemployed, and disenfranchised middle class begin rioting in the streets.
’Til then, I hear the new Leonardo DiCaprio film is pretty good.
I expect the results of the GS settlement to be about as serious as the Tob-acco settlement. Somebody got some money to forever look the other way. Big whoop.
July 16th, 2010 at 11:48 am
RBS IKB and KfW are considering legal actions against GS now.
I guess we’ll find out soon how much power GS really has.
PS: I’m skeptical but it would be quite satisfying watching an army of douche bags sue each other.
July 16th, 2010 at 12:00 pm
[...] dawned on me earlier today that the Goldman Sachs settlement may actually be the more important development than the [...]
July 16th, 2010 at 12:17 pm
Of course, FinReg is more significant than the GS settlement.
One, the history of SEC fines has not been indicative of salutary national solutions.
Case in the the 2006 $400 million fine imposed on FNMA.
SEC NEWS DIGEST
Issue 2006-99 May 23, 2006
ENFORCEMENT PROCEEDINGS
FANNIE MAE TO PAY $400 MILLION PENALTY FOR ACCOUNTING FRAUD SEC AND OFHEO SETTLE ACTION AGAINST FANNIE MAE
“The Commission filed a settled enforcement proceeding charging the Federal National Mortgage Association (Fannie Mae), a shareholder-owned government-sponsored enterprise, with fraudulent accounting in violation of the anti-fraud, books and records, internal controls and reporting provisions of the Securities Exchange Act of 1934 (the Exchange Act) and the anti-fraud provisions of the Securities Act of 1933 (the Securities Act). In a related proceeding, the Office of Federal Housing Enterprise Oversight (OFHEO) reached a settlement with Fannie Mae. As a result of its settlement with both OFHEO and the Commission, Fannie Mae will pay a total civil penalty of $400 million
to the U.S. government.
In its federal court Complaint, the Commission charged that, between 1998 and 2004, Fannie Mae engaged in a financial fraud involving multiple violations of Generally Accepted Accounting Principles (GAAP) in connection with the preparation of its annual and quarterly financial statements. These violations had the effect, among other things, of falsely portraying stable earnings growth and reduced
income statement volatility, and – for year-ended 1998 – of maximizing bonuses and achieving forecasted earnings.”
Of course, Frank Raines didn’t “clawback” any of his $100 million compensation. And, now FNMA is in conservatorship and will cost the taxpayer how much???
TWO: FinReg is 2,300 pages. Assuming one to three unintended consequences on each page . . .
No wait! Bad example: FNMA paid tens of millions of dollars in political and racial hush money . . .
9/18/2008: GWB signed the housing and Fannie Mae bailout bill, after the Senate passed it with 72. An underreported part of this story is that Majority Leader Harry Reid refused to allow a vote on Republican Jim DeMint’s amendment to bar political donations and lobbying by Fannie and its sibling, Freddie Mac.
1980-2007 friends of Fannie cash recipients (partial list):
Brookings institute = $3,906,000
Acorn = $797,000
Rainbow Coalition = $660,000
Center for policy alternatives = $635,000
Congressional black caucus = $608,000
Congressional Hispanic caucus = $28,000
Barrack Obama – $104,000
Jesse Jackson’s Citizenship Education Fund, an offshoot of his Rainbow/PUSH Coalition, has received more than $500,000 from Fannie and Freddie since 1996. A decade ago Mr. Jackson accused Fannie and Freddie of discriminatory lending practices. Those charges of racism went away once the grant money started flowing. Groups on the left complain about “corporate welfare” all the time, but curiously nary a one has opposed the Fannie and Freddie bailout — which amounts to one of the biggest corporate welfare gifts in U.S. history.
Fannie gave $10,000 to Speaker Nancy Pelosi, $10,000 to third-ranking House Democrat Rahm Emanuel, $5,000 to Barney Frank, $10,000 to Republican House whip Roy Blunt, $8,500 to Majority Leader Steny Hoyer and $7,500 to Minority Leader John Boehner and . . . you get the picture.
Freddie Mac’s foundation handed out $25 million to political groups, think tanks and other Beltway outfits in 2007 alone, more than any other foundation in the country, according to the Washington Business Journal. Guess which foundation ranked number two? Yep, Fannie Mae’s, which gave out $21 million.
July 16th, 2010 at 11:28 pm
See above…^
I”m the one that gave Rahm the $10,000 (as sited above) and please see my upcoming, unsigned, un-attributed, unsupported large font email in your inbox any minute now.
Believe the GOP media machine. Just believe.
In case you don’t… Now why aren’t we charging people a buck to make comments again?