So its consumer relief requirement is a little weird. "It is unclear exactly how Goldman’s consumer relief will be doled out and to whom," says the New York Times; clearly it won't go to Goldman mortgage customers. One obvious answer is that it could go to distressed borrowers whose mortgages are in pools securitized, underwritten, managed or serviced by Goldman. But that too is weird. Goldman doesn't own those loans. We don't know how the Goldman consumer relief will work -- it's just an agreement in principle for now -- but the JPMorgan and Bank of America settlements gave those banks 50 cents of consumer-relief credit for every dollar of mortgage forgiveness that they provided on loans that they serviced but that were owned by other investors. But it would be odd if Goldman's punishment for selling bad loans to investors is that it has to take more money away from those investors, by forgiving principal on those loans, and give it to homeowners. That seems to punish Goldman's victims again, and not to punish Goldman at all. This may be why Thursday's $5.1 billion agreement "will reduce earnings for the fourth quarter of 2015 by approximately $1.5 billion on an after-tax basis."
This is too simplistic -- principal forgiveness could in some cases be good for the loan investors, and it's not hard to imagine Goldman, you know, just finding some consumers and handing them cash -- but the important point is that Goldman has to pay -- or "pay" -- $1.8 billion to consumers, even though no one thinks that Goldman ever directly ripped off, or even met, a consumer.
Of course that makes perfect sense. The theory behind these settlements -- and the mainstream of thinking about the financial crisis -- is that the mis-selling of mortgage-backed securities did not only, or even primarily, harm the investors who bought them. It brought on a financial crisis, crashed banks, cratered the economy, and left people unemployed and out of their homes. That causal chain is not hard to understand, exactly -- there is literally a Hollywood movie about it -- but it's a tough thing to wedge into a lawsuit. It is not what you'd call a proximate cause. It's easy enough to sue a bank for lying about bonds that lost value and caused losses to investors, and to demand that the bank pay back those investors for their losses. It's harder to sue a bank for causing a recession, and to demand that the bank pay back consumers for that recession. The mortgage settlements are a very vague and approximate way to do that. But as a way to adapt the legal system to assign blame and seek compensation for an economic crisis, they're an impressive effort.
Also naked shorting.
Besides the mortgage agreement, on Thursday Goldman also entered into a settlement with the Securities and Exchange Commission over some short-selling violations. This one is barely even noticeable financially -- it's for just $15 million, or 0.3 percent of the mortgage one -- but it is funnier, so I ought to tell you about it briefly.