Goldman Mortgage Shorting Conspiracy? Not Likely

Dec. 5.07 | About: Goldman Sachs (GS)

If you missed the Ben Stein piece in Sunday’s New York Times — the one where he suggests some conspiracy between a Goldman Sachs (NYSE:GS) economist and the company’s public acknowledgment that it has been shorting the mortgage market — it was classic take-no-prisoners, grumpy Ben Stein.

If nothing else, it was thought provoking, as a good column should be. (By way of disclosure: I’ve been a longtime fan of his columns; he was among the pioneers in spotlighting financial fraud at companies back when nobody cared.)

But, as I told Stein in an email over the weekend, I think it was misguided. Without getting into details of our exchange, let’s just say we somewhat disagree.

This column in the past has raised questions about Goldman’s shorting of the mortgage market, considering that it was a big underwriter of the types of structured securities that have been the center of the storm.

My points to Stein were twofold: That an economist fronting the firm’s position seems a bit over the top — almost too obvious for it to happen. And if there is a conflict, as I have pointed out here previously, it would more likely be with a Goldman analyst’s negative call on Citigroup (NYSE:C) and other large banks within a week or so of the end of Goldman’s fiscal year.

Wall Street, by its nature, is inherently conflicted and if nothing else Stein’s piece is a reminder to investors.

For another take on this, let’s turn to a longtime reader who also has been in managing positions with a variety of Wall Street firms and is no fan of Stein:

I guess you have to have been in the business at a high level to know what really goes on at Wall Street Firms.

  1. The only conspiracies are those of the likes of Enron, Stan O’Neil, Ivan Boesky and First Jersey Securities. They don’t leave a paper trail like a research report or in the Blodget case just act stupid. They are sometimes caught.
  2. Even at Goldman they aren’t that smart.
  3. Each individual profit center wants the others to fall under a bus. The pot is only so big and they each want the others share. The politics and back biting are not to be believed. Do you really think that the originators of the paper even though profitable want people to think they are morons? Ask Zoe Cruz, [former co-president of Morgan Stanley (NYSE:MS).)
  4. If true, the perfect guy to fix it would be Paulson, just as Joe Kennedy was the perfect guy to start the SEC. [Stein had suggested that perhaps Hank Paulson, former chief of Goldman, is conflicted as Treasury secretary.]

The beat goes on…