The Fed Against Goldman Is Like Watching The Dog Chasing His Tail
Just when you think you have seen it all you realize that you haven't. This afternoon, Goldman Sach Group Inc.(NYSE:GS) agreed to pay future penalties and review foreclosures in order to help compensate homeowners of wrongful seizures. This all occurred under a Goldman Sachs subsidiary Litton Loan Servicing LP. Goldman Sachs actually sold the lending firm today for $264 million.
Now, the Federal Reserve ordered Goldman Sachs to retain an independent consultant to review foreclosures initiated by Litton that were pending in 2009 or 2010. The penalties for the financial giant have not been announced yet, however, Goldman Sachs was just bailed out by the Federal Reserve in 2008. Now the same institutions that bailed out the investment bank is imposing penalties on them.
Many traders and investors believe that this is simply a public relations stunt and makes for good headlines. The Federal Reserve Bank has been under a lot of pressure recently by many political candidates. Obviously, Congressman Ron Paul(R-Texas) has been very critical of the central bank throughout his entire career. Most recently, other presidential candidates such as Congresswoman Michele Bachman(R-Minnesota), and Governor Rick Perry(R-Texas) have been very outspoken and critical of the Federal Reserve Bank as well. The central bank looks to be trying to clean up its image by today's announcement. This is almost the same problem that Goldman Sachs has had to face since 2009 regarding the bailout American International Group Inc.(NYSE:AIG), at that time Goldman Sachs was paid 100 cents on the dollar by the bailed out insurance company. In 2010, the SEC fined Goldman Sachs Group with a $500 million fine for involvement in an elaborate mortgage backed securities deal with billionaire hedge fund manager John Paulson. The Federal Reserve going after Goldman Sachs is just like watching a dog chase his tail.
This afternoon, Goldman Sachs stock is trading lower by $3.80 to $112.35 a share. The stock will have intra-day support around the $110.75 area.