Ben Stein was up to his usual silliness in Sunday’s New York Times, this week writing about a conspiracy theory involving traders manipulating the market in search of profit. He gives his theory a name—Financial Realism—because he bases it on something he learned about in law school called Legal Realism. According to his theory, traders have been using fear churned up by the subprime storm to push markets down in search of profits.
It’s a really radically theory of how easily markets can be manipulated. If traders could really move markets like Stein thinks, we wouldn’t already be hearing about January was a terrible month for hedge funds, and quantitative managers went through another 28 sigma event last week. And, as Gary Weiss points out, if Stein were right about this all being a result of manipulation, that would be good news. Because soon the efficiency of the markets would step in, set things right, the Fed wouldn’t have to inflate away are already meager savings and we could live forever on the big rock candy mountain.
“If the current market action is the manifestation of some sort of evil trader genius, they have executed it pretty poorly,” Naked Capitalism writes. “Every major firm should have been net short, not just Goldman. The investment banks, with their sales forces and research arms, are in a much more powerful position to push rumors. If the market fall was by design, pray tell me how it benefited the Street? They have taken over $100 billion in writeoffs, and the fourth quarter results are still coming in.”
After the jump, we get into it with a bit more detail with Stein again.
You have to admire the mental agility of Ben Stein. A couple of weeks ago he was calling for the Justice Department to investigate Wall Street. Now he wants the government to bail them out with billions of taxpayer dollars.
Oh, and it’s not morning in America anymore. Now he says the economy is slowing.
Larry, Curly, Moe and the Economy [New York Times]
We thought that our wrap-up of the reaction to Ben Stein’s piece might finally put our day-long obsession with his Goldman Conspiracy Theory Essay to rest. But then Stein himself decided to lash out against one of his opponents.
The news comes from our friends at New York magazine’s Daily Intel, who actually got a hold of Stein and asked him about the reaction.
“It is hardly to be expected that I could question an institution as powerful as Goldman Sachs and not get some response,” Stein told Daily Intel. “As to Paul Krugman, I don’t like to deal with people so full of hate. His recent piece on [Milton] Friedman [in the New York Review of Books] was so thoroughly debunked by Anna Schwartz that I would well imagine he’s not happy.”
Of course, this is a slimy—if tactically smart—move. No doubt Stein is particularly hurt that another New York Times writer with economic credentials bashed his essay. (Isn’t there some policy that says they aren’t supposed to openly mock each other? We’d always assumed that there must be. How else do you explain the lack of open mockery of Maureen Dowd in the pages of the Times?) But going after Krugman is slimy-smart because a lot of Stein’s detractors are also not the biggest fans of the Krug. It even makes us uncomfortable to find ourselves agreeing with him. And reminding everyone that Krugman is a Friedman-basher and, more broadly speaking, an Keynesian enemy of free-markets is rhetorical hardball.
But it’s probably a misstep for Stein to imply that his column was criticized because he questioned “an institution as powerful as Goldman Sachs.” Take a look at that long list of critics from our earlier post. Not a one of them is routinely a defender of Goldman or of institutional power in general. In fact, pretty much every single one of the critics we quotes is far better known for biting at the ankles of our financial titans. This just makes Stein looks sadly defensive.
Ben Stein Thinks Paul Krugman Probably Just Has Low Self-Esteem [Daily Intel]
We’re not the only ones who have called out Ben Stein for yesterday’s column. It’s getting roundly trounced by most commentators. Here’s a quick round-up of some of the comments we’ve come across today.
• Roger Ehrenberg thinks the main sin of Goldman economist Jan Hatzius did was dissenting from Stein’s rosy view of our economic prospects. “Just because his paper doesn’t comport with Mr. Stein’s view of the world doesn’t make it wrong or its methodology flawed – it’s just that Mr. Stein doesn’t like it,” Ehrenberg writes.
• Athenian Abroad says that Stein doesn’t seem to understand the difference between capital requirements and reserve requirements. “Hatzius’s paper describes the impact of the sub-prime crisis on bank lending via the hit to banks’ capital. Stein dismisses this, because the Fed can create reserves, and because Stein doesn’t know that these are completely different things,” the Athenian writes.
• Naked Capitalism goes back an re-reads that Alan Sloan piece Stein refers to and discovers that the New York Times columnist totally misread it and seems to have confused events of 2006 with those of 2007.
• Stein’s even getting it from his fellow denizens of the New York Times. “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,” Paul Krugman says.
• Leftist economist Dean Baker won’t even support the Goldman bashing. “Stein gives no reason whatsoever to doubt that Hatzius wrote a serious analysis of the current state of the U.S. economy,” he writes.
• Dan Altman turns Stein’s conspiracy theory around. “You could also ask whether Stein, a friend of the Bush family and sometime cohort of the president, is just trying to prop up the economy to help his old pal,” he writes.
• Surveying the scene—the Stein piece, the reaction to it (we cribbed a couple of these links from his earlier post)—Portfolio’s Market Mover Felix Salmon finds himself depressed. “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,” he writes.
• Even Fake Ben Bernanke takes a shot: “Stein goes on to say in reference to Goldman ‘It is far worse when the sellers were, in effect, simultaneously shorting the stuff they were selling, or making similar bets.’ Of course, Stein innocently points out that he’s simultaneously a shareholder in the company he’s criticizing. Why not have it both ways?”
• Oh, and because of the wonders of the internet, we have already heard from Henry Blodget, whose crooked stock analysis was cited by Stein in the column. “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,” Blodget writes.
So far, Stein’s only defenders seems to be our pals Charlie Gasparino, who has been appearing on CNBC to balance what has been a brutally critical reaction by most of the networks anchors and guests, and Wall Strip founder Howard Lindzon. Over on his blog, Lindzon writes that “Goldman is the world’s largest bookie that fixes games and legally sells you shit while they are dumping it out the back door.”
While we’re on the topic, we might as well mention that Ben Stein also seems to have an inflated view of the role of economists at investment banks, and perhaps in the world. Most traders and brokers we know tend to regard their economists as irrelevant at best and hazardous at worst. They are used to economists taking positions that are unhelpful to their book or to their sales efforts. But they don’t mind that much because they don’t think many people listen to—much less follow the advice of—their economists.
“These guys are talking heads for us. Part of brand promotion on a grand scale. They might as well work for the PR department. They get the firm’s name out there but, internally, no one really trades on what they say,” one equity trader with over twelve years experience tell us.
We’re kind of having a Ben Stein afternoon here at DealBreaker. We can’t seem to put his Sunday column down.
Earlier today we noted how his Sunday column rested on the nonsensical position that there was something unethical about shorting mortgage indexes while selling collateralized mortgage products. But the thing that seems to be getting the most attention around town is Stein’s sleazy smear against one of Goldman Sachs’ leading economic analysts, Jan Hatzius. We want to talk about this but we can’t even get straight what it is Stein is accusing Hatzuis of doing. (And we suspect Stein can’t get it straight either.)
On the one hand, Stein points out that Goldman Sachs apparently sold collateralized mortgage products but—don’t try to follow this too closely or you’ll wind up stupider for having tried to think like Stein—one of it’s chief economists has said that the credit crunch may force banks, brokerages and hedge funds to cut lending by $2 trillion and trigger a recession.
“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?” Stein asks.
On the other hand, Ben Stein makes the opposite point: that Goldman’s chief economist is attempting to talk up a recession to help Goldman’s short positions.
“Here is my humble hypothesis, even after talking to Goldman: Is it possible that Dr. Hatzius’s paper was a device to help along the goal of success at bearish trades in this sector and in the market generally?” Stein asks. “His firm says his paper, like all of its economists’ work, was not written to support any larger short-trading strategy. But economists, like accountants, are artists. They have a tendency to paint what their patrons, who pay them, want to see.”
Goldman can’t win with Stein. If the sell credit products while shorting them he accuses them of being new-age stock pumpers. If they publish reports predicting dire consequences for the economy, he accuses them of creating fear to bolster their short positions.
Our humble hypothesis is that Stein has no idea what he’s saying. He can’t decide whether Goldman’s sin was selling products it doesn’t believe in or promoting a view of the credit markets it does believe in. His main column is a mess of innuendo and half thought out positions, mixed is misplaced populist bravado. It’s like he packed every nasty thing he could think of—without bother to actually think thought any of them—and then let them pour onto the pages of the New York Times, like so many clowns falling out of a tiny car.
Earlier on DealBreaker: Ben Stein’s Crazed Attack On Goldman and Ben Stein’s One Good Point.
It’s been quite a while since we spent so much time thinking about Ben Stein. And when we say we’re thinking about Ben Stein we mean, as is so often the case, laughing about Ben Stein. His “Everybody’s Business” column is so consistently—we almost want to say insistently—muddled that we sometimes find it hard to even comment on it. There’s no reply to his arguments because, well, there are so few actual arguments in his arguments.
Yesterday’s column on the perfidy of Goldman Sachs selling collateral mortgage products while shorting the mortgage market is a masterpiece of the style of Stein. His major premise—which is apparently borrowed from a recent piece in Fortune by Allan Sloan*—is that there is something deeply unethical about “peddling” collateralized mortgage obligations while shorting this market through index sales.
The ethics of shorting a market while selling related financial products to those who are long that market reminds Stein of KGB ethics. We’re not going to pretend to understand this analogy. Instead, let’s get straight to the heart of the matter: Stein is criticizing Goldman for hedging its bets.
At first glance, there was something so cerebrally offensive about VH1’s new show, “America’s Most Smartest Model,” co-hosted by former model Mary Alice Stephenson and BEN STEIN, that I instinctively flipped over to the Indians/Red Sox game when a rerun of the latest from smut TV came on at the gym last night, and I never instinctively flip over to baseball. But I did, and didn’t think twice about the great loss, only about Boston’s crushing defeat. Unfortunately, when no fewer than five of my friends who I’d never before thought of as having questionable taste and/or brain damage contacted me in various ways this morning to say “America’s Most Smartest Model, watch it,” I decided I had to give the show a chance before I rejected it. This pains me to say, but I think you should, too. The overwhelming feelings of sadness and depression and “Oh my god, what am I doing with my life” upon hearing Ben Stein deliver the intro, “Models: they’re sexy. They’re stylish. And if conventional wisdom holds true, they’re all dumber than a box of rocks,” is quickly displaced with joy and dare I say, a smile, upon realizing that old Ben has finally given up the charade of being “an economist” and submitted to his true calling: demeaning 14 mildly attractive and cartoonishly stupid contestants (the 7 male ones are referred to as “himbos,” the 7 female ones as “bimbos”) on a weekly basis and, in the process demeaning himself (which we mean in the best way possible). In one scene, Stein asks Himbo Gaston to “name things that smell bad.” Gaston (with some apparent difficulty), comes up with “shoes, socks, a dirty penis.” Ben characterizes these answers as “pretty obvious and simpleminded.” In another he asks Bimbo Rachel, “What is the official language of Australia.” In an “assessment” round, he tells one Bimbo, “I do not get this outfit,” agree with his co-host that a himbo “doesn’t have his cat walk down,” and dismisses a crying contestant’s tears by offering, “This show is not ‘America’s Most Nicest Model.’” If you do one thing today, get acquainted with this show. It puts Stein’s work shilling for Visine Clear Eyes to shame.
America’s Most Smartest Model [VH1]
America’s Most Smartest Model Spelling Bee [YouTube]
America’s Most Smartest Model Dirty Penis! [YouTube]
Ben Stein has been very public about his distaste for private equity, and his latest love letter to his pen pal of discontent hits on all the familiar arguments. Stein says that PE money is largely the result of smoke and mirrors, and that milking money from taking a company private is a complicated web of collusion between management, accountants, the banks and fund managers.
PE gurus even get to shirk the spectre of the IRS, thanks to favorable congressional treatment (especially from the G.O.P., which PE is railing against these days in the form of Obama and Clinton funding) and the upheld legitimacy of carried interest as capital gains instead of regular income from the ongoing operations of a business. Stein argues that this is unfair to the I-bankers, who pay real taxes. Geesh, when can those I-bankers ever catch a break?
Stein, then takes an unexpected turn into the depths of human insight. Stein’s metaphysics of market analysis, from the New York Times:
I THOUGHT about all of this, and then I thought of something that shook me: I might be wrong. I might be wrong about every part of it. I don’t think I am, or else I would not write it. But I could be wrong. The fact that my words appear in black and white in a major newspaper does not make them automatically true. The fact that I have a lifetime of education and experience in this field does not guarantee that I am always right.
That fact that Ben Stein is smarter and more awesome than you are does not mean his arguments are. Ben Stein is but a man. If you prick Ben Stein, does he not bleed, or at least ooze a bit? After his self-doubt, Stein probes the soul of the financial media.
After all, I am just a person. So are all of us who write for newspapers. So are the people at CBS and “Marketplace” and at Fox and at Yahoo. So is everyone. We have grudges we may not even be aware of. We have envy. We have class and religious resentments. We wake up some mornings feeling great and some mornings feeling terrible. We have the myriad influences of childhood, family, friends, environment. These all affect what we write and what we believe. We’re not oracles or vessels of divinity except to the extent that all children of God are.
What Is This Thing Called Private Equity? [New York Times]
The Sunday Business section of the New York Times is a gift that keeps on giving. We’ve already mentioned Gret-Gret’s fabulous rave. And next up we’ve got Ben Stein’s column.
In case you haven’t been paying attention, Stein is the kind of Republican commentator the Times loves to love. The kind that lets people write things like, well, this:
“When a card-carrying Republican gets fired up about greedy executives and the wealth gap, that means our current state of economic stratification is baaaad, y’all.”
You get the point. They might as well call the column “Even Republican Ben Stein says…” because that’s the point of the whole thing.
Yesterday’s column was actually more sober than many recent efforts. Ben takes a look at the recent wave of stock buybacks and considers them a bad sign for the economy. He’s got a number of reasons for thinking this—some kookier than others—but the main one seems to be that he takes the buybacks as a sign that businesses have run out of other ideas for spending money. Now, this no doubt partly explains some of the buyback wave. But it’s also plausible that corporate boards have simply become more shareholder friendly and are pushing more cash back to shareholders in reaction to all the negative publicity from recent corporate scandals.
But that’s more of a quibble than anything more serious. What really caught our eye was the sweetness at the end of his column. After writing about the joy of his wife after her gave her a big diamond ring, Ben writes:
In a few days it will be Valentine’s Day. Don’t mortgage your future, but if the last few years have been good to you and if you have given what you should to charity, make the investment in your spouse or significant other.
The return in her happiness, as far as I can tell, is beyond counting — and tax free.
When you’re out of town, when you’re under the ground, that stone will still be there on her finger — and in a way, you will be, too.
Shoot. If “even Ben Stein” is getting all warm around the heart region, maybe we can too. And we apologize now for getting all sincere on you for the second time in one day.
It’s a Great Country, Especially if You’re Rich [New York Times]