Citigroup today announced it would pay a heavy fine for its involvement in the mortgage-backed securities financial crisis:
Citigroup said it would take a $3.8bn pre-tax charge in the second quarter as it became the second big US bank to settle with the Department of Justice to resolve a long-running US government investigation into the sale of mortgage-backed securities.
The bank, which will report earnings later on Monday, said it agreed to pay $7bn in total, including $4bn in cash to the DoJ, $500m in cash to the Federal Deposit Insurance Corporation and several state attorney generals, as well as $2.5bn in consumer relief.
The penalty is much larger than analysts had originally expected Citi to pay to settle the civil investigation. However, the final deal is still lower than the opening bid of $10bn made by the DoJ that prompted big investors to encourage the bank to go to court rather than reach a settlement.
Shares in the bank rose 1.3 per cent in pre-market trading to $47.60 in New York.
The settlement is part of a broader probe into US banks by the state and federal task force formed in January 2012 by the Obama administration to look into the sale of mortgage-backed securities; the debt instruments at the heart of the financial crisis.
JP Morgan has already been fined for its involvement and Bank of America is next on the chopping block:
JPMorgan Chase, the first big US bank to settle with the DoJ, paid $13bn for a broader settlement, while Bank of America is expected to pay as much as $12bn for its own tailored deal.
There’s an entity conspicuously absent from the hit list- Goldman Sachs.
Goldman Sachs bet, through AIG, that the securities it was selling to investors would fail. As part of the TARP bailout Goldman received nearly $13 billion to cover those losses when they did fail. Goldman also shorted the securities through Citibank, JPMorgan Chase and Morgan Stanley.
Goldman knew enough to short the securities which means they knew full well what they were worth.
After his own investigation, democrat Senator Carl Levin believed Goldman had deceived investors and the government and referred Goldman to DOJ for a criminal investigation:
Goldman Sachs Group Inc. (GS) misled clients and Congress about the firm’s bets on securities tied to the housing market, the chairman of the U.S. Senate panel that investigated the causes of the financial crisis said.
Senator Carl Levin, releasing the findings of a two-year inquiry yesterday, said he wants the Justice Department and the Securities and Exchange Commission to examine whether Goldman Sachs violated the law by misleading clients who bought the complex securities known as collateralized debt obligations without knowing the firm would benefit if they fell in value.
The Michigan Democrat also said federal prosecutors should review whether to bring perjury charges against Goldman Sachs Chief Executive Officer Lloyd Blankfein and other current and former employees who testified in Congress last year. Levin said they denied under oath that Goldman Sachs took a financial position against the mortgage market solely for its own profit, statements the senator said were untrue.
“In my judgment, Goldman clearly misled their clients and they misled the Congress,” Levin said at a press briefing yesterday where he and Senator Tom Coburn, an Oklahoma Republican, discussed the 640-page report from the Permanent Subcommittee on Investigations.
And what came of that referral? You guessed it.
The Justice Department has decided it will not prosecute Goldman Sachs or its employees for their role in the financial crisis, following an investigation by senators Carl Levin (D-MI) and Tom Coburn (R-OK). The congressional investigation found problems with the credit rating agencies and poor oversight from regulators, and highlighted abuses by Goldman Sachs and other large investment banks. Senator Levin sent a formal referral to the Justice Department for a criminal investigation in April 2011.
The investigative report by the Senate’s Permanent Subcommittee on Investigations, chaired by Levin, found that Goldman Sachs “used net short positions to benefit from the downturn in the mortgage market, and designed, marketed, and sold CDOs in ways that created conflicts of interest with the firm’s clients and at times led to the bank’s profiting from the same products that caused substantial losses for its clients.”
A statement from the Justice Department issued late on Thursday evening noted, “Based on the law and evidence as they exist at this time, there is not a viable basis to bring a criminal prosecution with respect to Goldman Sachs or its employees in regard to the allegations set forth in the report.”
So let’s have a look at how one convinces the DOJ to drop financial probes.
Top contributors to Obama campaign 2008
Goldman Sachs $1,034,615
As the New York Post reported Tuesday, the Democratic National Committee immediately bought ads on Google that direct web surfers who type in “Goldman Sachs SEC” to Obama’s fundraising site.
Also from Michelle Malkin’s article:
– Goldman Sachs partner Gary Gensler is Obama’s Commodity Futures Trading Commission head.
– Goldman Sachs kept White House Chief of Staff Rahm Emanuel on a $3,000 monthly retainer while he worked as Clinton’s chief fundraiser
– Former Goldman Sachs lobbyist Mark Patterson serves under Geithner as his top deputy and overseer of TARP bailout — $10 billion of which went to Goldman Sachs.
– Obama’s close hometown crony, campaign-finance chief and senior adviser Penny Pritzker, was head of Superior Bank of Chicago, a subprime specialist that went bust in 2001, leaving more than 1,400 people stripped of their savings after bank officials falsified profit reports.
There’s more at the link.
Goldman’s investment in Obama has paid off thousands of times over. They don’t call Obama “President Goldman Sachs” for nothing.
Image courtesy Clockwork Conservative