Ben Stein Watch: February 10, 2008

One of the more subtly irritating things about Ben Stein’s NYT column is the fact that he seems so cavalier and ungrateful about the fact that he has such an influential pulpit from which to broadcast his biweekly blather. The amount of time and effort he put into this week’s column, for instance, was probably less than he expends on trimming his nose hair on a monthly basis. It’s an incoherent mess which any self-respecting NYT editor would immediately reject out of hand if it came from anybody else.

I’m talking about style, not substance, here: while I normally concentrate on what Stein says, it’s worth mentioning occasionally that how he says it can be truly atrocious as well. This week, Stein’s thesis, insofar as he has one, is so obscured by his inarticulacy that it’s quite difficult to actually object to anything in the column.

Certainly, the standard Stein touchstones are there: Bob Dylan, "this great nation", "fiduciary entities", derivatives which are "subject to manipulation", "the climate of fear the news media have whipped up", "Anyone? Anyone?".

And there are some easy-to-spot falsehoods and silly exaggerations, too. For one thing, the whole column leans upon the fragile conceit that subprime mortgage lending is usury – which it clearly isn’t. Single-digit interest rates can be high, but they can’t be usurious. Stein talks about the high yields on bonds backed by subprime mortgages, when in fact the boom was fuelled by the low yields on those bonds. And in the absence of argument he’s always happy to resort to hyperbole: "the republic teeters", "the near ruin of immense banks".

But if you manage to whack your way through the thickets of Stein’s prose, a relatively simple theme does slowly emerge:

Now who is doing badly? The investment banks that did not sell their whole inventory of subprime — and did not sell short — are suffering badly. The banks, insurers, and hedge funds that bought and held subprime securities are hurt. The stockholders of these are hurt drastically…

The cheerleaders in Washington say, “Now we need even less regulation!” And the Supreme Court, that highest judicial body in the land, just spoke through its cloaks most deep and distinguished, and severely limited the ability of shareholders to file federal class-action suits against investment banks that help a company accused of committing fraud.

Is anyone ever going to wake up to the fact that there is a lot of larceny in the human heart and that there are a lot of sheep waiting to be shorn and that regulation is not a bad thing?

Note the litany of losers: investment banks are "suffering badly", buy-side institutions are "hurt", but it’s shareholders who are "hurt drastically" and who have been "severely limited" in their ability to sue those banks.

Now I thought that the big problem in the US (and world) economy is the credit crunch – the fact that liquidity in debt markets has dried up, with nastly implications for economic growth. But Stein looks at everything from the point of view of a stock-market investor: what’s going on in credit markets really doesn’t matter unless and until it starts dragging down equities. When the credit markets were in turmoil but the stock markets were doing fine, Stein was perfectly happy. Now that the stock markets have followed the credit markets down, he’s mad, and he wants someone, anyone – regulators, judges, he doesn’t mind – to ride to his rescue.

Stein complains of "larceny" among bond investors, that most mild-mannered and risk-averse group, and blames their greed for the current crisis. He neglects to mention that equity investors, pretty much by definition, always take on more risk, and are therefore more greedy, than bond investors. Perhaps, in other words, the person most in need of regulation is Stein himself.

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