Ben Stein Watch: March 8, 2009
Ben Stein is scared. His fear, he’s decided, is a function of "the crushing downward movement of mortgage-backed bonds and derivative securities linked to them". In turn, Stein is convinced that the downward movement is due to "unnecessary losses" related to technical factors, and has come up with a list of three "possible solutions" which he thinks should be implemented. Needless to say, all three are pretty silly.
I’ll get to Stein’s "possible solutions" in a moment, but first it’s important to take a step back and note that he really doesn’t get it, if he genuinely thinks that technical market factors are a major component of the current meltdown.
Stein has made a lot of money over the years preaching the gospel that stocks tend to go up in the long term, and is clearly distressed at the fact that anybody following his advice over the past decade has ended up underwater. Naturally, he’s inclined to point fingers anywhere but at himself — and so he has cast around for villains. Villain Number One, of course, for any unimaginative finance columnist, is always that dastardly chap the Short Seller.
Stein’s first solution is to suspend mark-to-market accounting, on the grounds that it’s altogether too nice to short-sellers:
The “mark to market” price is just the price at which the last short-seller made his sale.
This accounting rule kills banks and insurers, kills credit generally and makes taxpayers pay off the profits of short-sellers. It’s time to stop this giant gift to those sellers.
We’ve heard this sentiment consistently over the past couple of years, and every time someone like Stein has come out to say that the short-sellers are driving securities below their fair-value level, those securities have proceeded to plunge in value even further, justifying the shorts and making it obvious that their old price, far from being too low, was actually far too high.
More generally, if the short-sellers were really doing so spectacularly well, wouldn’t someone have noticed their profits? With the exception of John Paulson, Jim Chanos, and a handful of other hedge-fund managers, very few people seem to have been profiting much from the plunge in the markets. Since the market losses are many orders of magnitude greater than those short-sellers’ gains, it’s implausible on its face that Stein’s losses are simply pouring into the pockets of the shorts.
But if there aren’t many successful shorts out there, the number of successful naked shorters is pretty much zero. Stein wants to "end naked shorting" — that’s his second solution — but hasn’t bothered to notice that it doesn’t even exist in the first place, certainly not in any measurable quantity.
Finally, Stein wheels out that other great demon of the oversimpliers, the CDS market. He’s decided that pretty much the entire CDS market should be unwound somehow, citing a Gretchen Morgenson column which I fisked back in January. This is an interesting development, since a few months ago, in October, he had an even more idiotic idea about CDS; he’s clearly let that one fall by the wayside.
And that’s it. If we’re mean to short-sellers and put an end to the CDS market, then Stein will no longer suffer from "real, grinding, 3 a.m. fear, replete with nightmares of bread lines". And if you believe that, I’ve got a credit default swap on the US government which I’m happy to sell you for 450bp.
Incidentally, I hope that the NYT editors have noticed the way that Stein has now cozied up to Morgenson. His column was, at one point, meant to be some kind of counterpoint to hers: the Republican against the voice of the common woman, or something. Now that he’s moved entirely into her court, he surely should be found surplus to requirements.
Reprinted from Portfolio.com