Goldman Sachs Making Payoffs to Make Snoops Go Away

Ahhh, Goldman Sachs, the fourth branch of the government.

Goldman Pays Greenmail to Make Snoops Go Away: Jonathan Weil
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Commentary by Jonathan Weil



http://www.bloomberg.com/apps/news?pid=20601039&sid=apXH8S_cHhTw&refer=home


May 14 (Bloomberg) -- Thanks to the commonwealth of Massachusetts, crusading attorneys general throughout the land now have a road map for extracting multimillion-dollar checks from Wall Street banks such as Goldman Sachs Group Inc.: Don’t accuse them of anything at all.

The big news from Goldman and Massachusetts Attorney General Martha Coakley this week was a $60 million settlement, under which the investment bank resolved her office’s investigation into its packaging of mortgage securities backed by subprime home loans. Per the usual custom in such accords, Goldman didn’t admit any wrongdoing.

The odd part is that Coakley’s office didn’t accuse Goldman of any wrongdoing, either. It filed no lawsuit. And it made no allegations that Goldman had violated any statutes or rules.

Why did Goldman pay if Coakley’s investigators couldn’t identify any infractions to allege? That’s a mystery. The only statement I could squeeze out of Goldman was a one-liner from a P.R. man, Michael DuVally. “Goldman Sachs is pleased to have resolved this matter,” he said. I’ll bet it is.

The closest thing to an accusation Coakley could muster during a May 11 press conference was that Goldman “had played a role” in predatory lending in the state. Then again, so did a lot of other companies. By that standard, even local newspapers that printed the lenders’ ads might be in trouble.

Goldman paid anyway, the same way a company might pay greenmail to a corporate raider who demands a premium price for his shares in exchange for going away. If getting Goldman to fork over a $60 million settlement is this easy, it seems every state attorney general in the country should try it.

Making Amends

According to Coakley, who has been investigating abusive lending in the mortgage industry since 2007, Goldman offered to make amends before her office had completed its probe or concluded whether the bank might have any liability.

“They agreed it was in their best interests to mitigate whatever damage had been done,” she told me in an interview. “They’re the ones who asked ‘What would satisfy you?’ We laid out what we were looking for in terms of damages.”

The outcome will draw no complaints from the 714 lucky Massachusetts borrowers who took out subprime loans Goldman now holds. Under the pact, Goldman will provide about $50 million of relief for residents in the state, including principal reductions of as much as 35 percent for first-lien mortgages.

Coakley said many of the mortgages -- which were originated by other lenders, not Goldman -- “were unfair” and “designed to fail at the inception.” Goldman also is paying $10 million to the state, almost all of which is earmarked for its general fund, although this wasn’t labeled as a fine.

Investors’ Stake

The borrowers aren’t the only ones who had a stake in the investigation’s outcome. So did investors who bought subprime mortgage securities from Goldman.

According to the settlement agreement, the probe’s scope included whether Goldman’s disclosures to investors in such securities were adequate. The state also was investigating whether Goldman failed “to take sufficient steps to avoid placing problem loans in securitization pools” or “to correct inaccurate information in securitization trustee reports.” Coakley’s office left those questions unanswered.

When I first read through the settlement agreement, which contained no findings of fact, I couldn’t help but wonder if this might be one of those instances where a prospective plaintiff agrees to take a payoff in exchange for keeping silent about any damaging information it knows.

You Have to Wonder

Coakley said it was a fair question. She assured me, though, that this wasn’t the case. “There was no smoking gun here,” Coakley said. She said Goldman’s $60 million offer was everything her office could have hoped for, especially given its limited budget and jurisdiction over the bank’s activities. Even if the state had filed claims against Goldman, “we would not be able to achieve a better result,” Coakley said.

That may be true. It’s also conceivable that Goldman had no legal liability, and decided to pay the equivalent of a parking ticket just so it could get the investigation over with and stop racking up bills for outside lawyers.

Yet there’s the inescapable feeling that we have no idea what really happened here. Those 714 borrowers may be getting compensation. What much of the public is looking for, though, are answers about how some of the nation’s most powerful Wall Street banks helped drive us into our present economic mess.

We didn’t get any this time. Perhaps that’s one reason Goldman is so pleased with this investigation’s resolution.

(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net
Last Updated: May 14, 2009 00:01 EDT