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Tuesday, December 04, 2007

Ben Stein's Goldman Sachs Column: Just the Facts

By now, the financial blogosphere is teaming with reactions to Ben Stein's column in Sunday's New York Times about potential conflicts at Goldman Sachs related to its short positions in the collateralized mortgage obligation (CMO) sector. Most of the comments have dissected his presumptions that Goldman Sachs is an underground imperial network, ala the Russian KGB, and that research circulated by one of its chief economist, Jan Hatzius, is nothing short of "lazy" and even possibly libelous.

As an attorney, I stick to the facts and then analyze based more than 25 + years of Wall Street litigation experience. Based on the facts, I'm firmly in Stein's camp.

  • Fact: (Goldman Sachs) alums are routinely Treasury secretaries, high-advisors to presidents, and occasionally a governor or United States senator.

  • Fact: Jan Hatzius sent a letter for unlimited distribution and consumption hypothesizing that subprime mortgage crisis would get so bad "that it would affect aggregate lending extremely adversely and slow down growth."

  • Fact: Hatzius admitted that he left out of his doomsday scenario the likelihood of action from the Federal Reserve.

  • Fact: While aggressively selling risky CMOs to investors, Goldman Sachs was moving "to a considerably larger short posture."

A classic conflict of interest if there ever was one, and a nefariously sounding one at that. Rounding out the latest Wall Street conflict is another indisputable fact: Wall Street has a sordid history of harming investors through conflicted financial research targeted at individual investors. Stein actually mentioned disgraced Merrill Lynch tech-analyst Henry Blodget as proof, but it certainly doesn't begin and end with Blodget. Frankly, I couldn't decide whether I was reading classic Ben Stein satire given his shock at Goldman's audacity and influence.

Likewise we shouldn't be surprised that Goldman Sachs gets a free pass for alleged misdoings. They have never been held accountable. Take for example the Speer Leeds & Kellogg traders who were front running orders. After a menial fine it was back to business as usual and traders kept their jobs.

Stein's critics miss the only real opening to find fault in his column: that he's had his head in the sand if he thinks this is anything new.


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