Ben Stein's Crazed Attack On Goldman
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.
One of the more popular criticisms of many Wall Street institutions is that they didn’t manage their risk in credit markets well enough—mostly because so many of them were so long in credit markets. Goldman was one of the few that managed to avoid serious losses because while it participated in the credit boom—by lending into the LBO market and by selling collateralized mortgages, among other things—it was also taking positions that profited when this turned around. This is actually what we expect of a well-managed, diversified investment bank. Stein says it’s not an example of “sterling conduct” but that is exactly what it looks like to us.
Other banks and brokerages have found that they've taken a double hit from the credit markets because they had both long positions in credit and were dependent on the revenues from selling credit products to see profits. If this is what Stein considers "sterling conduct" we'll take the Teflon coated Goldman version any day.
Perhaps more importantly, the buyers of Goldman’s CMO products were not even remotely close to the kind of people who bought tech stocks that were pumped up by sale-crazed analysts in the late nineties. The CMO investors were sophisticated institutions, perhaps some wealthy individuals and hedge funds. Goldman is entirely entitled to take a position that differs from customers who are drove up the demand for credit products.
By shorting the market for these things Goldman may well have created a downward pressure on the prices for credit products. Without that short pressure, investors who stayed long in the market may have well continued to pay even higher pressure. At least short interest in indexes such as the ABX created a warning signal that the prices were not reflecting the risk of these products. Goldman may have actually lessened the pain of the collapse of the CMO market by shorting it early.
*We haven’t read Sloan’s article yet because apparently our subscription to Fortune has lapsed—or maybe our neighbor, Moby, has been stealing our copies. We plan to get to it later this afternoon.**
**Admitting we haven’t read the article yet is probably a breach of journalistic ethics—which seem to require that you pretend to know everything about everything—fortunately we’re very short journalistic ethics and aren’t peddling that junk to anyone.
The Long and Short of It at Goldman Sachs [New York Times]
Earlier on DealBreaker: Ben Stein's One Good Point
Comments
Dude, Moby is your neighbor? Fuckin awesome....
Posted by: We are all made of stars | December 3, 2007 01:27 PM
13:28 12/03 SL Green to buy Citigroup NY complex -sourceNEW YORK, Dec 3 (Reuters) - Office property owner SL Green Realty Corp SLG reached an agreement to buy Citigroup Inc's
C downtown office complex for $1.575 billion, a source familiar with the deal said on Monday.
Posted by: Citibroke | December 3, 2007 01:29 PM
That just goes with the farce known as 'earnings" at the Q release.
"we did fabulous with our money.......oh...you're money?? well we made a few boo-boo's...why don't you come into THIS room and we'll talk about it"
In a nutshell a very cocky and totally passes for "advice"....I bet downgrading the whole technology sector after the close on Friday was ok too.
Posted by: michael schumacher | December 3, 2007 01:43 PM
carney you should recognize ben stein for his overwhelmingly positive contributions to society- like his judging "america's most smartest model".
All things aside, the scene where he forces old babboon lips to eat a piece of chocolate cake is pure genius.
Posted by: girl | December 3, 2007 01:56 PM
girl, "america's most smartest model" is bess's beat, not jc's.
Posted by: Anonymous | December 3, 2007 01:57 PM
You mean to say Stein IS JUST NOW figuring out what GS does all the time? Jeez.
I loved Stein's column back when he worked for E Online (My Night at Morton's) or some such when he wrote about a Britney Spears supping in completely see through apparel at said restaurant. And that was before she decided to roll VIP with K-Fed.
Posted by: The Forehead Slapper | December 3, 2007 02:20 PM
so Goldman is helping the situation by shorting it..
Right...oK does it occur to you that Goldman gets a free pass on EVERYTHING and trades around it's book becasue it might have just a few people in places that could benefit the firm??
Nahhh..that would'nt allow you to "pen" what passes as an article. I do not agree with Ben Stein almost all the time however he has a point and suggesting that "it's just a hedge " is a little too precious especially for Goldman Sachs, who run our effing economy at this point.
yes we need more profits out of distressed times. It would be vastly different if Goldman Sachs Executives did'nt occupy some of the highest ranking positions in the world......Go ask Italy how they like it
Posted by: Anonymous | December 3, 2007 02:24 PM
sounds like a simple case of GS covering its ass on all fronts. Ben Stein's--I think--makes his point as clearly as it can be made.
Posted by: anonymous | December 3, 2007 02:32 PM
its goldman for god's sake!
the angels in heaven have their back and the witches from hell wipe their feet.
so no sense calling them out when you know they do what they do.
Posted by: justtookthecfa | December 3, 2007 02:44 PM
Commies!!!
Posted by: Joseph McCarthy | December 3, 2007 03:20 PM
Not sure where SL thinks they're going to get the leverage for a $1.5bln CRE acquisition. That's going to fill a lot of Life Company quota, and it's doubtful that SL will even consider paying the credit spread, or dealing with the structure an I-Bank would place on that transaction...
Posted by: yep... | December 3, 2007 03:44 PM
@ 3:44, its supposedly a 13-year sale/lease-back. It smells fishy though at mid $550/sqft though and some other details. Anyone know what the "cost" of the bldg was, that is, for comparison to the deal DB just did with 60 Wall?
Posted by: JT | December 4, 2007 12:11 AM
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.
Posted by: Hedgie1 | December 10, 2007 09:57 PM
The hysterical way in which DealBreaker is attacking Ben Stein is laughable. Hedgie1 is right: GS really pushes the envelope when it comes to ethics. The writers of this blog, who pretend to have an inside view, should now that. Instead of defending the practices of GS, Dealbreaker should be critically assessing them. It does not and that's one of the reasons why this blog is getting boring...
Posted by: Marcel Hooft van Huysduynen | January 8, 2008 06:55 AM