Ben Stein: Smarter than Goldman?

Posted by: Diane Brady on December 3, 2007

I found myself both amused and confused after reading Ben Stein’s provocative piece on Goldman Sachs in The New York Times. When someone starts a column with references to a secret government run by (among others) Big Oil and world Jewry, it seems fair to assume that some sort of parody may follow.

But Stein, once a fixture on Comedy Central, is dead serious about the issues he has with Jan Hatzius, a “highly placed” economist at Goldman Sachs. Hatzius, it seems, has been painting a more apocalyptic picture of where the subprime mess will end up than what Stein himself envisions. (We have published his dire views ourselves) Worse, Stein writes, the man is employed by a bank that has capitalized on enthusiasm for subprime mortgages while also shorting the market to make money. As Stein writes: “To me, his paper seemed like a selling document in the real Wall Street sense of selling — namely, selling short.” It was, in essence, a device to drive up fear, thus driving up the profits of those bearish trades.

Personally, I didn’t find it shocking that a bank could both sell collateralized mortgage products and short the market at the same time … unless perhaps it was double-dealing with the same (presumably stupid) party on the other end. But what do I know? Quick, somebody call in America’s Most Smartest Model!

After quoting Eric Burdon (not by name, mind you, but through the lyrics of Spill the Wine), Stein goes on to exhort the government to investigate “what Wall Street and Goldman did to make money as they pumped this mortgage mess into the economic system, and sometimes were seemingly on both sides of the deal.”

Stein raises some good questions, including what former Goldman Sachs chief and current protector of the economy Henry Paulson has to say in all this. It seems like a good bet, at least, that his point of view will be clear.

Reader Comments

Frank

December 4, 2007 12:43 AM

Ben, you are my hero............

kent anderson

December 4, 2007 10:07 AM

I am confused when I Have an idea and want to help our world all people By The word FUTURE , and iv been fighting for the individual Rights of people and countries ,
and fighting For years attacks and my former lawyer of DC who sent me up .. and no one wants to help to stand up for the people Global FUTURE Voice . By KGA www.futurevisionaries.com

citracyde

December 4, 2007 10:31 AM

This blog entry makes an equal amount of sense as the stein article. Very choppy and all over the place.

Diane

December 4, 2007 1:27 PM

Conspiracies don't tend to last too long in today's transparent market.

Baseline

December 4, 2007 4:19 PM

Conspiracies or not, I for one would be interested in the government investigation. We should look into the conducts of the Wall Street in detail, and how it helped to fuel the mortgage fire that's raging all over the country.

Arlene

December 4, 2007 4:48 PM

Thanks Ben & Diane, for seeing the the hmmm... moment in the midst of this pending catastrophe. Those who will not question deserved to be lead. Astray!

Michael

December 4, 2007 5:14 PM

I agree with Frank, Ben Stein is a hero; but don't stop there Ben, go for the kill. Expose these parisites for what they are. The land of the free and home of the brave need more journalists like you. God Bless.

c

December 4, 2007 11:54 PM

Ben,

I have been wondering the same for some time. It seems that these pseudo economist keep predicting these turns shortly after their company goes short (not after). It seems to benefit Goldman. It is a shame that the vast majority of investors should have to pay for a couple of greedy pigs. Where is the SEC when you need them???? (Nice speech at UofI)

Model Guy

December 6, 2007 9:59 AM

I think Ben Stein is better suited to figuring out the least dumb model on television than who's to blame for the subprime mess. To me, he'll always be a comedian

Diane

December 6, 2007 10:11 AM

Personally, I see some similarities between assessing the IQ of models on TV and trying to pin down the most egregious character in the subprime mess.

Felix

December 6, 2007 7:04 PM

Yeah except Ben Stein was never really a comedian. He happened to be on the faculty at the High School where Ferris Bueler was filmed, was casted for the role, and parlayed it into an entertainment career. Ever seen a Ben Stein stand-up routine? No cause I think even he would tell you he is no comedian!

1984

December 8, 2007 5:20 AM

Most of Ben Stein's columns make sense. This one may be a trace paranoid. However, the concept that a huge (probably too much) financial clout resides at GS is likely correct. Having a Treasury Secretary come directly from their front office is too much of the fox protecting the hen house problem.

Short version of the subprime mess is that it should not have happened. It is a colossal goverment failure...another one. Now they are looking for folks to blame and ways to contain the damage. If we had term limits and serious campaign donation limits, this would never have happened.

Hedgie1

December 10, 2007 10:06 PM

Everyone on Wall Street knows that Goldman's proprietary trading divisions really push the envelope when it comes to ethics. How else do you think Goldman has amassed huge short positions in the RMBS and CMBS markets? They sold synthetic CDO's to customers (which don't require ownership of the underlying) and simply took the other side of the trade. No reason to hedge using theABX, just sell more derivatives! This game has been going on for a long, long time in many different forms of derivatives but this one was easier to push because the securities seem so simple the surface but are in fact so complicated. I guarantee that their salesmen were told to push these very complicated products hard to plain vanilla managers. That way the more the firm sells, the more bearish bet the firm takes (at a great price). I view this as crossing the ethical line. It is much different than the firm taking a punt. This was a coordinated effort to use their information asymmetry and screw over the customer.

I have been trading derivatives for 15 years and I have no idea how to price these things, furthermore the data required to price them accurately is very hard to come by and virtually inaccessible for a medium sized manager (of course Goldman has the data).

My experience with Goldman is whenever possible they will pursue the less transparent more complicated solution like trading things synthetically which usually screws over the customer. If you are a “plain vanilla” manager and Goldman pushes these products on you beware! They are doing this because there is more “juice” in the trade for them not because it is a custom fit for you! Once some more knowledgeable folks on Capital Hill figure out what is going on there is going to be hell to pay.

Jim Lawson

September 10, 2009 1:07 AM

I like Ben Stein however people give too much credit to high IQ. Being smart and being wise are vastly different things. IQ gives one the capacity to figure out how to do things efficiently not whether they should be done or not. Smart without wise is dangerous. There were a lot of smart people in Nazi Germany and I'm sure there are many at Citibank et al. Our society seems to over value being smart without realizing that smart constitutes the lesser part of consciousness.

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