Ben Stein Rips Goldman Sachs over Subprime Mess
TV personality Ben Stein knows how to pick a fight. In a weekend column in the New York Times, Stein declared the investment bank Goldman Sachs "irresponsible" for selling large quantities of mortgage-backed securities and then "shorting," or betting against them, in the market.
Stein — an unabashed conservative, capitalist and Goldman Sachs shareholder — went on to level some charges against Treasury Secretary Henry Paulson, who used to head the investment bank. He says Paulson shouldn't be presiding over efforts to address the subprime mess because he ran a firm that helped create it.
Goldman Sachs calls the charges categorically untrue.
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MELISSA BLOCK, host:
In his long career in Washington and Hollywood, actor and author Ben Stein has made a lot of provocative comments. Few have generated the kind of reaction he got for a column in Sunday's New York Times. The column took aim at the Wall Street colossus Goldman Sachs. And it raised questions about the objectivity of one of Goldman's economists.
NPR's Jim Zarroli reports.
JIM ZARROLI: Ben Stein is an unabashed capitalist and a conservative, not to mention a Goldman Sachs shareholder. He's not the kind of guy you'd expect to be taking on the big investment bank. But he says that when he read a recent paper by Goldman economist Jan Hatzius, he simply couldn't hold his tongue.
Mr. BEN STEIN (Actor; Capitalist; Goldman Sachs Shareholder): I think it's flawed. It's seriously flawed.
ZARROLI: The paper in question warned that banks are losing so much money in subprime that they will have to drastically cut back on lending and how that could badly hurt the economy. In one section, Hatzius predicts that home prices could fall nationwide by 15 percent. Stein isn't sure things will get that bad, but his real beef is with Hatzius' objectivity. He knows that Goldman Sachs has been shorting a type of mortgage-backed securities, essentially betting that the mortgage business will worsen. That means the firm benefits when its economists circulate gloomy reports like this one.
Mr. STEIN: Dr. Hatzius is a fine fellow and - but any economist is presented with all kinds of data. He can make a choice about which data he uses and which conclusions he reaches. And I think economists like other people tend to favor the side that pays them.
ZARROLI: Stein says the real question is whether any Wall Street economist can be truly objective since their employers always have multiple investments that can be hurt or helped by their public remarks.
Mr. STEIN: Wall Street is a selling mechanism. It's not a judging mechanism or a fairness mechanism. It's a selling mechanism. And what they do is sell and make money. They're not scholars, they're moneymakers. And, of course, that's what they want to be and that's what we stockholders of their firms want them to be.
ZARROLI: For his part, Hatzius didn't want to comment for this story. But Goldman Sachs calls the charges categorically untrue and said its research is held to the highest standards of objectivity. It also notes that Hatzius has been talking about the housing bubble for years.
In this 2005 interview with NPR, Hatzius warned that an economic downturn could lead to a spike in mortgage foreclosures.
(Soundbite of archived interview)
Mr. JAN HATZIUS (Managing Director and Chief U.S. Economist, Goldman Sachs): Now the risk resides, to some extent, with the homeowner, but it also resides, to some degree, with the people who make the loans or the people who end up purchasing the securitized loans in the public markets.
ZARROLI: But Ben Stein says if that's true, it raises other questions. If Goldman's economists thought a housing bubble was building, what was the firm doing selling all those risky mortgage-backed securities?
Stein's remarks have generated a lot of commentary on TV and the Internet. Charles Elson, who teaches corporate governance at the University of Delaware, takes issue with the idea that Wall Street economist like Hatzius have a built-in conflict of interest.
Professor CHARLES ELSON (Corporate Governance, University of Delaware): I think the suggestion is, well, the economist, you know, wrote something because the firm asked this economist to write this. But if the economist didn't believe it and things turned out quite differently, then the economist's personal reputation disappears and his value to the firm as an economist disappears.
ZARROLI: But Elson says that Wall Street firms do have at least the appearance of a conflict of interest. And he warns that can spell trouble for them as the subprime crisis drags on.
Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright National Public Radio.
