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Why Goldman's $550M Settlement Is Barely a Wrist Slap

The biggest penalty in Wall Street History? Think again

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Goldman Sachs has agreed to pay a $550 million fine to the Securities and Exchange Commission, finally settling a high-profile fraud case over allegations of investor fraud. The investment firm stood accused of hoodwinking clients by selling them dubious mortgage securities that were designed by a hedge fund manager betting against the assets. Though the settlement is being billed as "one of the largest penalties in Wall Street history," a number of financial bloggers think Goldman got off easy. Here's why:

  • The Fine Is Actually Minuscule, writes Marian Wang at ProPublica: "The SEC is touting the sum as the 'largest-ever penalty paid by a Wall Street firm,' but how much does the settlement actually hurt Goldman? We looked a up few numbers to put things into perspective:

It’s about two weeks’ worth of profit. Goldman reported [5] (PDF) earning $3.3 billion in the first quarter of 2010. That’s about $250 million in profit per week.

It’s a sum that Goldman could pay immediately (and probably a hundreds of times over).The company’s average global core excess liquidity—the average worth of assets it could readily convert into cash—was $162 billion for the first quarter of 2010.

It’s a fair amount more than what Goldman made on the deal the SEC sued over. Goldman reportedly made $15 million in fees [6] from the CDO deal that landed Goldman in hot water. But keep in mind: Goldman did 25 of these so-called Abacus deals [7] in all, and created many more CDOs without the Abacus label.
  • Goldman Escapes Unscathed, blogs law professor Miriam Baer: "Forbes, and the WSJ online have both suggested that the episode has damaged Goldman's reputation. Sorry, but I'm not buying it. A fine that is half of what the media speculated, paired with no significant admission of wrongdoing, does not tarnish Goldman's reputation one bit with either its customers or its investors. A recent report by Andrew Ross Sorkin in the New York Times Dealbook suggested that most of Goldman's customers were staying put. As for investors, consider this: as a result of after-hours trading, Goldman's stock is currently trading in the neighborhood of $153 per share, up from $140 just one day ago."
  • May Embolden Goldman, writes Felix Salmon at Reuters: "I’m just surprised that they didn’t even get any management changes, or any kind of mea culpa. The risk, of course, is that Goldman’s victory here will only serve to exacerbate its arrogance. Could the Squids of West Street become even more insufferable, now?"
  • Nothing Was Learned, sighs John Lounsbury at Credit Writedowns: "The SEC spokesman emphasized the need for accountability. Has accountability been served? ...Nothing was said about 'deliberate' actions. The implication I take away is that the assumption can be made that the entire episode was inadvertent, accidental. I personally do not subscribe to that interpretation."
This article is from the archive of our partner The Wire.