Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Can Goldman Settle?

The Goldman Sachs booth on the floor of the New York Stock Exchange
Getty Images

Goldman Sachs is one of the banks charged with fraud in the Federal Housing Finance Agency (FHFA) lawsuit.

For Goldman, this poses a serious problem. (For background on why Goldman was charged with fraud, see Courtney Comstock's excellent piece at Business Insider.)

The bank resisted settling the Securities and Exchange Commission (SEC) lawsuit because it charged the firm with fraud. Insiders at Goldman repeatedly said the firm would never settle any lawsuit on terms which required the firm to "neither admit or deny" a fraud charge. The firm insisted on vigorously denying fraud. The settlement with the SEC was reached only when the government agreed to drop the fraud charges.

So will Goldman fight as hard now? Will Goldman insist that the fraud charges be dropped as part of any settlement?

Insiders at Goldman say that the fraud charge still rankles. Goldman simply does not believe that it engaged in fraud. It believes it does "God's work," as the CEO once put it. So the firm is gearing up to fight the charges by lambasting Fannie Mae and Freddie Mac, according to a person familiar with the matter.

Incidentally, here's how said banks are addressing the lawsuit:

BANKS CONSIDER TOTAL WAR—M.M. hears that instead of contemplating settlements of the FHFA mortgage-backed securities lawsuits, big banks and their attorneys are more likely to pursue what insiders describe as an all out war strategy in which they go after Fannie Mae and Freddie Mac (and by default their Democratic supporters) in a scorched earth strategy to show the GSE’s took an active role in creating the very securities they are now suing the banks over.

In short, don't expect a settlement of this lawsuit any time soon.


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