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Op-Ed August 2, 2010
The recent stock market collapse caused a $37 Trillion decrease in market cap valuation at its peak in 2008, according to Alan Greenspan. This triggered a global depression that persists to this day. Few disagree that the root cause of all of this was the irresponsible and fraudulent trading by Wall Street banks of complex financial instruments called CDO’s.
Most of these banks were taken down by their own stupidity. Lehman Brothers and Bear Stearns no longer exist. Merrill Lynch and others were forced into mergers. However, Goldman Sachs seemed to have actually profited on the bad mortgage-back securities that became worthless, and as such, has become a lightning rod for all of the global anger.
Congress paraded Goldman Sachs executives before hearings on multiple occasions as the politicians sensed their own demise this Fall. The BP oil spill redirected the news and the SEC investigation into Goldman was recently settled for approximately $550 Million. This amount represents only 1.2% of Goldman’s 2009 revenues or 4.1% of 2009 net income.
To address whether the Goldman Sachs SEC fine is fair and just, one needs to look at other corporate fines. Last September, drug giant Pfizer settled a DOJ investigation for $2.3 Billion over illegal marketing of the drug Bextra. That is four times the amount of the Goldman Sachs fine in absolute terms, or 4.6% of Pfizer 2009 revenue and 26.7% of 2009 net income (6.5 times the impact to Goldman Sachs). This was a much greater hit to Pfizer than was the fine to Goldman.
Pfizer’s crime against humanity was illegally marketing a drug that might have led to increased rates of death. That is indeed a serious offense. Goldman Sachs critics would say that their crime was in playing a significant role in separating $37 trillion in assets from stockholders (global GDP in 2009 was $58 Trillion according to the IMF) causing a global depression and massive unemployment.
Whether the Goldman Sachs fine was too small or the Pfizer settlement was too large is up to debate. One thing is clear: the financial industry lobbyists still rule supreme. The newly passed financial regulation bill is now in the hands of the lobbyists to iron out the details. Is there any doubt whether those details will favor the banks?