The mishandling of mortgage backed securities that caused the financial crisis in 2008 is going to cost Goldman Sachs Group around $5.1 billion, as they have agreed to settle the U.S. probe into the situation. This will cut Q4 profit for the company by close to $1.5 billion and round off a year characterized by record costs in litigation.
Fourth in Line
The deal announced by the bank on Thursday is just one in a slew of settlements in the billions made with banks that are a direct result of government’s insistence on holding Wall Street companies responsible for contributing to the financial crises by selling subprime mortgage bonds.
The three banks that have already been penalized by the authorities are the three banking giants in the U.S. Bank of America Corp, JPMorgan Chase, and Citigroup. They have had to pay over $37 billion in either cash or consumer relief. The issue these banks are settling is the misrepresentation of the quality of mortgage loans to investors, loans that were securitized into risky bonds.
According to the bank’s statement, as per the agreement with the government’s task force Goldman Sachs Group will have to pay a civil penalty of $2.39 billion, an additional $875 million in cash, and provide consumer relief of $1.8 billion.
Easy Way Out
Not everybody is satisfied with the way the issue has been handled by the government. A number of public-interest advocates and lawmakers have criticized the approach taken by the authorities, as it punishes the banks as entities, without holding any individuals responsible. Without specific people being prosecuted or held accountable, the banks end up paying the settlements and calculating the outcome as the cost of doing everyday business, leaving plenty of room for the same offense to be repeated in the future.