Goldman Sachs: The Ben Stein defence | The Economist: GOLDMAN SACHS is being ripped apart in Washington for making a bundle by shorting the mortgage market while peddling products that would profit from continued housing bubble inflation. If the implication is that Goldman was somehow duplicitous, maybe it should call Ben Stein to its defence. Mr Stein, the economist, comedian, and actor, wrote a column in December 2007, in the New York Times, attacking Goldman’s chief US economist, Jan Hatzius, for issuing deeply bearish reports on the housing market. Mr Stein wrote:
Dr. Hatzius … used a combination of theory, data, guesswork, extrapolation and what he recalls as history to reach the point that when highly leveraged institutions like banks lost money on subprime, they would cut back on lending to keep their capital ratios sound — and this would slow the economy… his paper is not really what I would call a serious overview of the situation. It is more a call to be afraid and cautious based on general principles that he embraces and not on the lessons of history. .. you have to use what I think are extremely far-fetched hypotheticals to get to a scary situation.
Mr Stein goes on to speculate that the real goal of Mr Hatzius’ implausibly bearish outlook is to help Goldman Sachs earn money on its short position in housing. A spokesman told Mr Stein the firm had been bearish on housing since 2006 and that its short position had recently gotten “considerably larger”. In the wake of the dot com bust, investment banks were rightly excoriated for having analysts stamp their approval on companies their firms took public while privately calling them junk. Whatever Goldman’s other sins this time, that doesn’t strike me as one of them. The firm and its chief US economist were of one, very public, view: housing was going down and it would cause a world of hurt