Marketplace Scratch Pad

Goldman settles a phantom case

Scott Jagow May 14, 2009

Earlier this week, Massachusetts announced a $60 million settlement with Goldman Sachs over the bank’s “involvement” in subprime loans. Marketplace PM reported on this Monday. But one thing we failed to mention that I find very interesting is that Goldman agreed to the settlement without being accused of anything.

It’s common in settlements for the accused to admit no wrongdoing. But it’s pretty unusual for the “accused” to not be accused. There was no lawsuit. There was no allegation that Goldman violated any rules or laws. Bloomberg’s Jonathan Weil reports it out this morning:

The closest thing to an accusation (Mass. Attorney General Martha) 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.

Coakley says Goldman asked, “what would satisfy you?” And she came up with the $60 million figure. 714 Massachusetts homeowners will benefit.

By the sounds of it, there wasn’t any real against evidence of Goldman, so it’s very possible Massachusetts might not have won had this gone to court. Weil’s take:

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.

Yes, pleased with this one. But 49 other AG’s have to be licking their chops. By “making it go away,” Goldman might’ve just opened a door instead of closing one.

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