So the big news today is that Goldman Sachs settled with the SEC for a “record” fine of $550 million for alleged wrong-doing in regards to the creation of certain collateralized debt obligations.

Goldman’s statement: 

The firm entered into the settlement without admitting or denying the SEC’s allegations.  As part of the settlement, however, we acknowledged “that the marketing materials for the ABACUS 2007-ACI transaction contained incomplete information.  In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was ‘selected by’ ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson’s economic interests were adverse to CDO investors.  Goldman regrets that the marketing materials did not contain that disclosure.”

We understand that the SEC staff also has completed a review of a number of other Goldman Sachs mortgage-related CDO transactions and does not anticipate recommending any claims against Goldman Sachs or any of its employees with respect to those transactions based on the materials it has reviewed.

My questions:

  1. How many billions did Goldman actually make on this specific deal?
  2. How many other similar deals did Goldman originate or participate in that the SEC did not investigate, and how much money did Goldman make on those deals?

It’s clear from the statement quoted above that Goldman has simply bought off the SEC for $550 million, guaranteeing that the SEC will A) not look at any other similar deals and B) not bring any legal action against any individual Goldman employees who may well have behaved criminally (they certainly behaved unethically). I guarantee you that Goldman made a shitload more money than $550 million on this and the other similar deals. So that “fine” has to be seen by Goldman as merely a cost of doing business, and can’t be seen in any way as a deterrent to similar deals in the future.

I would also be very surprised if there were not additional payments to whoever sat on the SEC committee that accepted this settlement, though that will never come to light—Banksters have been buying Bureaucrats for so long, they must know how to do it with adequate secrecy by now. 

The only way that a “fine” can function as a deterrent to future wrong-doing is if the amount of the fine equals the amount of illicit profit made PLUS a substantial additional punitive damage amount that makes it simply unprofitable from a risk/reward analysis POV to do it again. It has to be expensive enough that the risk of getting caught doesn’t seem worth the potential reward. I’d say a minimum of 10 times the illicit gains would have to be the starting point.

Additionally, you absolutely cannot take prosecution of the employees off of the table because there is no there there. Corporate entities are entities in name and legal paperwork only. There is not actually a “being” there, making decisions. The decision-makers are the employees who are doing what they are doing as legal representatives of the corporate entity. If there is criminal activity by the corporation, the employee who carried out the illegal activity must be held accountable. Otherwise, even with monstrous corporate fines, the same or a future employee may still feel incentivized to take the illegal risk on the corporation’s behalf if his upside for taking that risk is big enough—corporate interests be damned. But leave the personal risk of going to jail in place and he’s less likely to make the sociopathic choice.