Goldman dodges SEC bullet over bum mortgage deal

AP

(MoneyWatch) The Securities and Exchange Commission has ended an investigation into whether Goldman Sachs (GS) misled investors in a $1.3 billion sale of residential mortgage-backed securities arranged by the investment bank in 2006, shortly before the housing crash. 

The agency notified Goldman in February that it was looking into whether the company misrepresented the riskiness of a mortgage deal dubbed "Fremont Home Loan Trust 2006-E." Goldman disclosed in a regulatory filing Thursday that the SEC does not intend to recommend any enforcement action against the company over the deal.

During the housing boom that preceded the 2008 financial crisis, Goldman and other large Wall Street banks bundled millions of risky home loans into securities and sold them to investors. In 2010, Goldman agreed to pay $550 million to settle federal charges that it misled investors in some mortgage products. The Financial Crisis Inquiry Commission, a congressional panel formed to examine the causes of the crisis, concluded last year that financial firms had deceived mortgage investors. 

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The SEC's decision not to file charges against Goldman over the mortgage deal is drawing criticism by advocates of stronger government oversight for Wall Street.

"It is still staggering that no elite player has been prosecuted, fined, or jailed," says William Black, associate professor of economics and law at the University of Missouri and a prominent former government financial regulator. "There has never been a single investigation worthy of the name of any of the entities involved" in the mortgage meltdown.

In the 1980s and 90s, Black was a top federal regulator at the Federal Home Loan Board and Office of Thrift Supervision. In that role, he led the prosecution of hundreds of bankers involved in the savings and loan crisis.

Black believes the current lack of prosecutions isn't the result of a "vile conspiracy" among government officials and financial executives. Rather, it is the result of government efforts in recent decades to make regulators more industry friendly, he said, pointing to then Vice President Al Gore's "re-Inventing government" initiative in 1990s as a key turning point in the relationship between federal watchdogs and regulated corporations.

"Agencies were told to get away from punitive actions," Black said. "Instead, they needed to form partnerships with industry. Industry needed to be thought of as customers."

This fundamental change in regulators' mission made it hard for government agencies to justify having large staffs. As a result, Congress cut the budgets of regulatory agencies tasked with policing the financial industry.

The FBI and the Justice Department rely on bank examiners and other front-line regulators for the information needed to prosecute fraud and other criminal cases. "It's not like finding a body on the street and looking for clues. These are very complex cases," said Black, author of the book "The Best Way to Rob a Bank is to Own One."

The FBI and U.S. Justice Department lack financial industry expertise, so they rely on financial regulators for advice on which companies and executives to prosecute. "During the S&L crisis, regulators made 30,000 criminal referrals," Black said. "So far the Office of Thrift Supervision has made none. The Office of the Comptroller of the Currency has made maybe three. The [Federal Reserve] has made three, and two of those were against foreign banks."

[JUndrtakr]

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[TJphoto]

The Fix is in. Paid for many times over in the last 3 decades. For those of you who think Congress is not for sale, look at your credit card statement. The cap on interest rates is 32%. Set by the Congress.

[Filmguy870]

Imagine that! Goldman Sachs skates.

Moral of story: be rich. I mean....how is this 'being poor' stuff working out most of us?

[MaryWaterton]

Goldman-Sachs gave $1 million to Obama campaign in 2008:

http://www.opensecrets.org/pres08/contrib.php?cycle=2008&cid=N00009638

As you can see, it always helps to have friends in the Government who owe you favors.

[joe1022joe]

Fear of a certain and very long stay at Attica, not ClubFed, is the only thing that would cause at least some of these mega-robbers to cease stealing from the American people to line their own pockets.

[commenter777]

It's official. The US condones criminality for the ultra-rich. This is not the country it was when I was born here decades ago. This country is crooked to the core and that won't work for long. I really don't care what happens to my own country now I am so sick at my stomach of this kind of absurd inequality based on buying justice and influence. I just want to watch our country disintegrate and laugh.

[wjss75606]

How much did they contribute to the re-election campaign? Seems to smooth things over with government agencies if you contribute enough to the powers that be.

[raymailhot]

The housing debacle is one of those liberal campaigns to do the most for the poor and in the end just leaves them worse off. Not everyone the mortgage companies use to deny was "based on race", few were. There was sound justification behind having the appropriate deposit (20%). This had always been the case and then freddie, fannie and the rest of the government started their campaign to put everyone in a house and when this bubble crashed, who was left poorer? All of us!

And now the blame game of the left has the mortgage companies as the only culprit. Be smart and let the banks be smart and get the federal government out of propping up freddie and fannie! America had to loan the banks money to get out of this debacle, otherwise we would have seen something worse than a recession.

[jtdev1]

You really don't know what you're talking about.

you don't remember what went on, I do and I know how agressive the banks got on trying to rope someone into an ARM mortgage knowing full well the interest rates would jump and they would profit nicely. Also, I know they never asked for squat while approving a mortgage, just sign on the dotted line.

My first mortgage they made me prove 5 years of income, All my bills, EVERYHTING.

[venusvegasvada]

Wow. Anyone on the planet surprised by this?

Do we have a big enough pair of clown-shoes for the Govt. to wear?

The off shot of things like this, for me anyway, is that every single time I see an advertisement from any of the Wall Street Banking or investment companies on TV like Goldman Sachs and the like, is that I extend my arm out towards the TV and raise my middle finger and give them the middle class salute.

...and vow to never give them a penny of my money ever again.

Yup, I give them a hardy @@#$-You, every time I see one of their ads. Same for the National Ass. of Realtors too. Screw all of them.

Until I see them put back the Glass-Steagall Act and tear down Gramm-Leach-Bliley and strike down the cute little lines that allow them to circumvent state bucket shop laws and do unlimited side betting....

I will salute you all.

[screaminmoon]

I know something the greed demons and the inJustice Dept will understand,
walk away from you debt this year, At least give it some thought,
We all know the scum own justice,enforcers and regulators.
They are all working together to screw us.
We can fight back without any help from the corrupt system
Help kill the system and walk away from your debt this year.
Just stop paying.It is THAT simple. Please help is you can.
Do not wait any longer for justice to be served.