My Call: Goldman will settle for $2 Billion, rather than risk trial

How much will the SEC sue Goldman for?  I predict $20BB.  Why? 

The end amount paid that has been talked about in a couple of blogs is $2BB to $3BB.  But, if you know how the lawsuits works, the suit amount could potentially be as high as $20BB.  In a civil trial you don't have to be able to show that investors were even harmed by this amount.  There could be punitive damages, or claims that the whole system was harmed.  There are all kinds of claims that could make the final amount outrageously high.

The way the lawsuit racket works is you impose a potential penalty which would be next to impossible to bear.  If the SEC sues for $20BB, that would equal about a quarter of the current market cap of Goldman.  If Goldman were to lose, it would make Goldman a slave to the Federal Government until they are paid.  With a market cap of $84BB, the stock would be worth $40 instead of where it sits at about $160BB. Mr. Buffet would not be happy.

Now if the SEC sues for 2$BB, Goldman would likely be inclined for go to trial.  With the flimsy evidence that has thusfar been presented, they would likely assemble something of a victory.  Either the most serious charges would be dropped, but might get pegged with a lesser charge. If Goldman loses, they pay the $2BB fine, stock drops to $150.  Life will go on without a hiccup. 

That is why my best guess is the SEC will sue for $20BB, but it will be reduced to $2BB as Goldman settles.  The SEC will feel vindicated, the treasury replenished.  It doesn't bode well because it would set a new very high bar for punitive damages.

For more insight into how the racket works and how it affects Goldman, via Jacob Hornberger:
Here's how the racket works. The government knows that its litigation will cost Goldman
Sachs millions of dollars in litigation costs, including attorney's fees, deposition expenses, bad public relations, and loss of revenues. So, the government calculates that the company will be willing to settle for a large amount of money to save itself from all that aggravation. The government accepts the settlement. The Justice Department lawyers celebrate that they've "won" the case. Federal officials, ever more desperate for more revenues to pay for their out-of-control spending, are exultant over the "free" monies that have been deposited into the government's coffers.

Many years ago, I was a young lawyer practicing law in my hometown of Laredo, Texas. One of my clients was the owner of a local trucking company. One day, he got served with a notice from the State of Texas assessing him with an enormous fine. The fine, the notice stated, represented the amount of extra burden that my client's trucking business was placing on the roads and highways of the state. The state was claiming that because the trucking industry used the state's roads and highways more than other people, it was more responsible for their maintenance costs.

I told my client that the state's claim was ridiculous. The state collects gasoline taxes to cover such maintenance costs. When trucking companies purchase gasoline, they're paying what the legislative branch has determined to be an appropriate amount. I advised my client to fight the lawsuit in that it was nothing more than extortion.

But there was one big problem with my advice. I don't recall the exact amount that the state was demanding, but let's say it was $200,000, which would have been an extremely large sum for my client, a small trucking company. The problem was that the state was offering to settle its proposed lawsuit for, say, $25,000.

So, my client was in a quandary -- whether to pay the $25,000 and get rid of the suit or fight the state on principle and possibly end up losing $200,000. My client chose to settle the suit. The state received a "free" $25,000, plus all the other settlement money that was being paid by other trucking companies that had received the same notice.

In the Goldman Sachs case, government regulations and regulators failed to prevent what they now claim is civil fraud. If economic regulations and government regulators can't prevent such things from happening, especially in one of the largest financial companies in the world, then what good are they? Isn't that the purported purpose of regulations and regulators?

The feds aren't going after Goldman Sachs on criminal charges of fraud, which would fall within the ambit of proper governmental powers. Instead, they're only going after the company on civil charges of fraud. They're seeking money, not jail time.

What's that all about? If investors have been defrauded, why can't they sue for their damages? Why shouldn't they, not the government, receive the money for damages they've allegedly suffered? What business does the government have suing for civil damages? It hasn't suffered any injury.

It's all about money. As the deficit becomes larger and larger, we can expect to see the federal government desperately looking for more ways to extract money from private businesses. Look at the record fine they just levied against Toyota -- $16.4 million, an amount that Toyota has agreed to pay rather than incur expensive litigation. No doubt federal officials are celebrating this large amount of "free" money that will soon be deposited into their coffers. And don't forget: all those automobile regulations and regulators failed to prevent the Toyota accelerator problems from occurring.

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