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Er, maybe Ben Stein should stick to giving models math quizzes? After his op-ed on Goldman Sachs appeared in Times yesterday, his colleagues in economics seem rather determined to push him off the playground. In the piece, which appeared on the front page of the business section, Stein dismissed a report from current Wall Street golden child Goldman Sachs, in which Goldman economist Jan Hatzius postulates the subprime mess will affect lending so much, home prices will drop by 15 percent, making way for the economy to stagnate, if not completely collapse. Stein’s argument was that this is unlikely to happen, because the Fed would step in and give lenders liquidity. Then he took his skepticism one step further, alleging that Hatzius, guided by the “invisible government of Goldman,” was “selling fear” in order to promote the bank’s trading policies, which include collaterized mortgage obligations, and that they should probably be investigated for less-than-sterling conduct. In response, the Internet went bananas.
“The evidence that bailouts of a collapsing financial structure is not always easy can be found on a little Asian island nation near China called ‘Japan,’” sniffed Dean Baker at the American Prospect. Stein “fails to land a single blow,” said the Naked Capitalist. “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,” Stein nemesis Felix Salmon wrote in Portfolio. Even Stein’s colleague Paul Krugman seemed to agree: “Maybe I don’t have what it takes to be a serious columnist,” he wrote sarcastically in a blog post last night. “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.” Snap.
