California Forum

Goldman Sachs settlement a significant step

Benjamin B. Wagner
Benjamin B. Wagner

Phil Angelides mischaracterizes the recent civil enforcement settlement with Goldman Sachs and gives voice to misdirected outrage. The settlement is one significant step in an ongoing enforcement effort: It resulted in a substantial fine, an admission of wrongdoing and compensation for some victim investors, and will deliver much-needed relief to consumers and communities. (“No real consequences, no justice in Goldman Sachs settlement”; Forum, April 17.)

The financial crisis hit this region hard, and outrage is justified. Greed and recklessness on Wall Street played a big role in triggering the crisis, but there is plenty of blame to go around. The crisis had its roots in thousands of fraud-riddled mortgage loans, many associated with properties in the Central Valley. Goldman did not originate the mortgage loans; the fraud in those loans was committed by brokers, retail lenders, real estate professionals and scammers who took advantage of loose industry standards.

My office has convicted nearly 300 of those fraudsters and most were not the “small cogs” that Angelides suggests – they used stolen identities, fake companies and false documents to rip off tens of millions of dollars, resulting in ruined credit ratings and sinking property values.

Goldman’s misconduct was in packaging many of these lousy loans into securities and selling them to institutional investors. Our settlement papers detailed the malfeasance that occurred in that process. But the review of loan file samples and packaging loans into securities occurred many layers below senior bank executives.

As a prosecutor for nearly a quarter century, no one is more dedicated than I am to developing criminal cases against bankers with significant responsibility for the financial crisis. My office continues to work with the Department of Justice to do that. But we must be guided by the law and the facts, not outrage, and make individualized determinations concerning the conduct and intent of each person.

Angelides says that his Financial Crisis Inquiry Commission found that major financial institutions included significant numbers of defective loans in mortgage securities and then misled investors about the quality of the loans in those securities. That is exactly what my office investigated and proved, as outlined in the settlement papers.

Angelides has offered no specific evidence relating to particular individuals at Goldman. The suggestion that the settlement includes a tax break is bogus. By law, Goldman can’t deduct any portion of the nearly $2.4 billion fine. The tax treatment of payments by Goldman to other parties is a matter determined under the tax code, not by anything in the settlement.

In addition to a fine of nearly $2.4 billion, Goldman will pay $875 million to investors who suffered losses after purchasing mortgage-backed securities offered by Goldman. Much of that money will compensate entities supported by taxpayers. Ten million dollars will flow to CalPERS and CalSTRS, benefiting public employees and teachers, and many millions more will be spent granting relief to distressed homeowners, including many in California.

Goldman will also spend millions more on affordable housing in some of the hardest-hit communities. Yes, as in previous bank settlements, there are incentives in the agreement to ensure that Goldman acts early and targets the resources to the neediest. Goldman’s compliance with those obligations will be overseen by an independent monitor.

Two dedicated attorneys in my office fought for two years with Goldman Sachs and a team of high-priced New York lawyers to secure this result.

Benjamin B. Wagner is the U.S. Attorney for the Eastern District of California. Contact him at usattorney.edca@usdoj.gov.

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