Ben Stein pops up in a lot of places: Yahoo
TV shows, even Portfolio
features. One place he doesn’t seem to have much presence, however, is the
UK. Which is just as well, because if he wrote anything like this
week’s NYT column in for a UK newspaper, he’d be risking a massive libel
Stein says that Goldman Sachs’s chief US economist writes research notes which
are "mostly about selling fear" and which are "a device to help
along the goal of success at bearish trades". He says that Goldman was
shorting its own CMO issues, and that it has "the culture of the KGB".
And he concludes:
Doesn’t this bear some slight resemblance to Merrill selling tech stocks
during the bubble while its analyst Henry Blodget was reportedly telling his
friends what garbage they were? How different would it be from selling short
the junky stock that your firm is underwriting? And if a top economist at
Goldman Sachs was saying housing was in trouble, why did Goldman continue
to underwrite junk mortgage issues into the market?
HERE is a query, as we used to say in law school: Should Henry M. Paulson
Jr., who formerly ran a firm that engaged in this kind of conduct, be serving
as Treasury secretary? Should there not be some inquiry into what the invisible
government of Goldman (and the rest of Wall Street) did to create this disaster,
which has caught up with some Wall Street firms but not the nimble Goldman?
The invisible government of Goldman? Do you think they have a secret
Stein, in this column, is accusing the honest and blameless Goldman economist
Jan Hatzius of much more than mere intellectual dishonesty: he’s saying that
Goldman and Hatzius are using economic research notes to drive down the bond
market and make profits on the firm’s bearish trades. He compares their conduct
to that of Henry Blodget, who was charged
with securities fraud and is now banned from the securities industry for
life. And he says that anyone who used to run such a shop should never have
been considered for the job of Treasury secretary.
It’s not illegal – in this country – for Stein to make such allegations.
But it is quite shocking, and depressing, that the Gray Lady would willingly
allow herself to be used as a vehicle for this kind of yellow journalism –
and would place it on the front page of its business section, no less.
Do I have to slowly explain why Stein’s column is in fact unmitigated garbage?
Thankfully, I don’t, because Dean
Baker and Yves
Smith have got there before me. In a nutshell: Goldman sold the CMO that
Stein complains about in mid-2006; it made its big profit on subprime shorts
a full year later. Stein’s ridiculous assertion that a credit crunch and growth
slowdown "has not happened on any scale in the postwar world" can
be refuted with one word: Japan. And as for Stein’s statement that a correspondent
of his in Florida "may be right, but he’s not", I’m sure that
that will turn out to be false as well, the minute that anybody can work out
what on earth it’s supposed to mean.
More generally, macroeconomic research notes do not move markets. And a mortgage-bond
origination team is hardly likely to disband and retire for a life of sheep
farming just because an economist employed by the same organization is bearish
on the housing market. Is that really what Stein would have had them do? By
all means criticize Goldman for underwriting nuclear waste, as Allan
Sloan did – that’s fine. But there’s an oceanic gulf between that
and securities fraud.
Update: Stein’s NYT stablemate, Paul Krugman, weighs
Maybe I don’t have what it takes to be a serious columnist. I mean,
it would never have occurred to me to suggest that the only way to explain
an economic forecast I don’t agree with is to say that it must be part
of an evil plot to drive down the market, so that Goldman Sachs can make money
off its short position — and to suggest that Goldman should be the subject
of a federal investigation.
Update 2: Ehrenberg
weighs in too, and athenian_abroad
notes that Stein seems to think a bank’s reserves are the same as its capital.