Goldman Sachs (NYSE:GS) on Monday agreed to pay $5.06 billion to settle claims it misled mortgage-bond investors during the worst financial crisis since the Great Depression. The investment bank had previously disclosed the settlement in January.
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Former UBS (NYSE:UBS) chairman Joe Grano, told the FOX Business Network’s Neil Cavuto that while the bank’s fine is just a drop in its bucket, the fact that it is paying and another entity is getting off the hook without much punishment of its own, is telling.
“No one is holding the government accountable for being the catalyst of the problem in the first place,” he said. “[In] 1999, Bill Clinton forced Fannie Mae and Freddie Mac to lower credit standards, no one holds them accountable.”
Investors saw billions of dollars in losses from mortgage-backed securities during the financial crisis.
“The rating agencies that put AAA on those securities that ended up getting flipped, dipped, sliced and diced – which really weren’t AAA – and the derivatives divorced themselves when there was no liquidity,” Grano explained.
He went on to say while there are many to hold accountable for what caused the 2008 financial crisis, it isn’t necessarily an institution that should be blamed entirely. He said the Dodd-Frank reform legislation aimed at reigning in Wall Street’s excess and ending the too-bit-to-fail era is the wrong approach.
“It’s not the size of the institution. It’s the size of a position that can create a systemic risk,” he said. “If the Fed looked at concentrated positions, they would ask the right questions and put in the right safety nets.”
He pointed, as an example, to JPMorgan’s (NYSE:JPM) London Whale – a trader who lost at least $6.2 billion for the bank in 2012 – as an example.
“So the issue is: Are you leveraged to the point where that concentrated position can cause a systemic risk? Leverage is the enemy,” he said.