Popular economist and actor Ben Stein rings a familiar bell: Wall Street analysts are just greedy shills.
In this case, Stein suggests that pessimistic Goldman Sachs economist Jan Hatzius is just pessimistic because he's shilling for the firm's traders: Goldman is making a fortune betting against the housing market (and related debt securities), and Stein argues that Hatzius's extreme pessimism about housing and the economy is designed to help the firm's bets. Five years ago, of course, the complaint about Wall Street analysts was the opposite (don't I know it): In those days, analysts were said to be optimistic just to help bankers shovel tech and telecom IPOs out the door.
To amp up the outrage, Stein also notes that Goldman created and sold the very debt products its traders (and Hatzius) are now shorting as fast as they can. Not only is Hatzius conflicted, in other words, Goldman is now making billions betting against the same stuff it was paid hundreds of millions to sell to suckers (maybe even you!) just a year or two ago.
Are you mad yet?
If so, get used to it.
Goldman Sachs, like all Wall Street firms, sits between corporations that want to raise money by selling securities at the highest possible price and investors who want to make money by buying securities at the lowest possible price. Goldman's mere existence, therefore, is a conflict: Every time Goldman facilitates a transaction between these two clients, someone gets the shorter end of the stick.
What's more, Goldman Sachs itself competes with both sets of clients. The firm looks out for its own interests first, and it usually wins. Ironic? Yes. Annoying? Often. A fact of life? The way Wall Street is currently structured, yes. But this doesn't mean Goldman can't add value. (Note that a lot of highly sophisticated clients continue to do business with Goldman Sachs).
The main impetus for Stein's article, it seems, is that Stein disagrees with Hatzius's conclusion: He doesn't think think things will get anywhere near as bad as Hatzius does. Stein makes some smart points, and, for the sake of the economy, let's hope Stein is right. But let's also applaud Hatzius for having the guts to say something interesting, plausible, and unpopular (if depressing): There's safety in the herd, and most Wall Street economists and analysts never risk straying far from it.
The real lesson here is that Wall Street analysts can't win: No matter what they say, it is easy to suggest that their conclusions might be motivated by something other than the facts. This is fair (who knows what truths lurk in the hearts of men?), but let's at least note that Wall Street shares this conflicted condition with many other industries.
As a commentator, for example, Ben Stein has to sell columns, and this is far easier to do when he has something sexy and popular to say (don't I know this, too). The number of readers interested in dry critique of Hatzius's argument might be measured in the triple digits. The number of readers interested in the ever popular argument that Wall Street is a den of thieves? Countless.
Stein's need to be entertaining, interesting, funny, and provocative almost certainly influences the content of his columns? I hope this doesn't mean I should stop reading him.
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I can't even express how badly I feel for them.
Along with Countrywide. How many of your tax dollars assisted that $51 Billion stealth bailout?
Ceasar's Wife.
Applies to you as well.
Mr. Stein, with all due respect, you still don’t get it. I witnessed you pumping the financials just four months ago based on their solid “earnings”, and watched you recoil when Peter Schiff challenged your Pollyanna view of wall street banks and investment firms. At that time, you viewed it as inconceivable that bank’s balance sheets might deteriorate.
When someone from Goldman draws you a picture to make it easy for you to follow, your response is to again reject the obvious logic, and then to criticize Goldman for seemingly talking from both sides of their mouths. You apparently believe that either you’re right and everything in banking is just fine, because that is the way it should be, or you were wrong, but the smart folks at Goldman are bad people for contributing to and profiting from the lunacy. But you write for two pages and cannot bring yourself to decide. What might be most precious is your vague conclusion that perhaps all of this should be investigated. Perhaps you can find some nice Democrats in Congress to help you with that.
The sad truth is that the U.S. financial system may be on the brink of collapse. And Goldman is corrupt and fraudulent, and does act as an agent of the U.S. government. Or is it the other way around?
I’ve watched you defend the most incompetent and corrupt administration in the history of the Republic for seven years now. Maybe you could reflect and write on their contributions to this mess. There are countless places to start: Cheney's absurd declaration that deficits don't matter; pressing the SEC to do something about naked short selling; Goldman's stealthy "adjustment" to their commodity index (GSCI), reducing the oil component months before the 2004 election.
I'm short about a dozen housing related stocks, and have been for two years, and I had no idea who Hatzius is until Stein mentioned him.
'nuf said..
Could it not be bravery at all but just another sales job?