Just as a hit movie about Wall Street greed gets an Oscar nod for best picture, one of the biggest financial firms, Goldman Sachs, has announced that it has reached an agreement to resolve current and future claims by federal and state officials related to the securitization, underwriting and sale of residential mortgage-backed securities from 2005 to 2007.
Ironically, these securities were the focus of the current film, The Big Short, which on Thursday was one of the Hollywood offerings nominated for best picture of 2015.
The announcements of both the Oscar nominations and the Goldman Sachs settlement were, of course, not directly related. But it’s difficult to ignore the timing. The Big Short is about those gutsy investors who bet big (by selling short) the financial instruments that were backed by these “toxic” mortgages, those written during the big run-up to the housing bubble in the early the mid 2000s.
Under the terms of the $5.1 billion agreement, Goldman Sachs will pay a $2.385 billion civil monetary penalty, make $875 million in cash payments and provide $1.8 billion in consumer relief.
The consumer relief will take the form of principal forgiveness for underwater homeowners and distressed borrowers; financing for construction, rehabilitation and preservation of affordable housing; and support for debt restructuring, foreclosure prevention and housing quality improvement programs, as well as land banks.
The Goldman Sachs deal is the latest multibillion-dollar settlement out of the government’s protracted campaign to hold Wall Street firms accountable for creating and selling subprime mortgage bonds that helped spur the 2008 financial crisis.
The Big Short’s all-star cast portrayed financial players who shorted financial instruments tied to these “toxic mortgages,” and by doing so, foresaw the housing market collapse.