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The Investor
Why Do They Do It?
A few thoughts on finance, Goldman Sachs, and porn stars.
Now for a few thoughts on finance, ethics, and the economy that have some relevance to what is going on in the nation today.
* Most of the men and women who work in finance and who handle other people’s money are devoted, capable, law abiding persons. This cannot be forgotten in the midst of a general outcry about some persons and some entities that put profit far ahead of pride. A staggering sum of money passes through these peoples’ hands daily without untoward incident. Credit where it’s due.
* However, that being said, there are certain persons and certain entities for whom profit is pride and for whom all the big questions in life are about “how many” and not about “how,” or more properly put, all questions about “how” and “why” are answered by answers about “how many.”
For an instructive example, I often hear questions about how people on Wall Street and in finance could possibly have made bets against their clients and lied to and deceived them. I am not saying that happened in the Goldman Sachs case, although the SEC alleges that it did. But clearly there have been many such cases in the past. The whole story of Drexel Burnham Lambert was about lies to the clients. So was a large part of the story of Enron.
How can men and women behave that way? Well, let me give you an example. I have long wondered how men and women could appear in porn movies. To me, they seem repellent and degrading on a special, humiliating scale. What could make human beings do such things and then have them on the Internet for the world to see in perpetuity?
Was it some childhood scar? Some deep deprivation of love in infancy?
A few days ago, I ran into a beautiful, revealingly dressed woman in the elevator of a building in Los Angeles where I have an office. I asked her where she was from and she mentioned a small city in Texas. I asked her what had brought her to Los Angeles.
“Well,” she said, “I came here to be in the adult film industry.”
“Really?” I asked her. “I have always been curious about what makes people go into that field. Do you have any ideas about what deep motives might have made you go into it?”
“Yes,” she said. “It pays really well.”
“Okay. How much can it possibly pay?” I asked.
“From five hundred to fifteen hundred a scene,” she answered.
“With respect,” I said, “that does not seem like a lot.”
“It is to someone who was earning an hourly wage as a waitress,” she said. “Where else was I going to earn that much money in a day?”
There you have it. For some people, if there is enough money, that answers all questions about morality and ethics and pride.
About the Author
Ben Stein is a writer, actor, economist, and lawyer living in Beverly Hills and Malibu. He writes “Ben Stein’s Diary” for every issue of The American Spectator.
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Pingback| 5.10.10 @ 6:36AM
Twitter Trackbacks for The American Spectator : Why Do They Do It? [spectator.org] o links to this page. Here’s an excerpt:
Alan Brooks| 5.10.10 @ 7:58AM
Maybe porn ought to be so disgusting it would make its viewers vomit.
Melvin| 5.10.10 @ 8:10AM
With the SEC doing the reviews for the Porn Industry, Goldman Sachs couldn't lose right. So maybe the blond in the elevator with Ben had more business sense that she is given credit for.
Alan Brooks| 5.10.10 @ 12:41PM
As the reviewer of 'Last Exit To Brooklyn' wrote:
"This film is so horrible it ought to be published so its readers will lose all interest in sex."
Let's encourage the porn industry to make bearded circus lady S & M flicks, and viewers will switch to watching Ozzie and Harriet DVDs and John Wayne.
Alan Brooks| 5.10.10 @ 12:44PM
oops, Last Exit To Brooklyn was reviewed as a book; however it was made into a film in the '90s.
Now isn't that nice? don'tcha wanna watch it right now?
JimE| 5.10.10 @ 6:35PM
AL,
LET'S FORGET ABOUT THE PORN INDUSTRY PANDERING TO YOUR SICK HOMO FETISHES.
Alan Brooks| 5.11.10 @ 3:47AM
You're the one who likes to have sex with snakes, JimE.
Ned| 5.10.10 @ 8:33AM
"And here is the saddest part: we worship money in this country, and no one even knows the names of the people who fight for us on the streets of Kandahar or Kansas City. Sad.”
Ben, I disagree, however I recognize you are writing in generalities. Just don't forget many, many, do good things everyday not fueled by the above motivation or share the ignorance of those who fight for us.
I won't go into the details, but my sister and I passed up a million bones a piece to do the right thing. It was pretty easy to do, but I admit, sometimes, now, after the act, it and the lost abilities of processing the money tries to worm its way into my selfish desires. And I do know some names of people who defend us, my son Martin, my stepson Leslie, my son-in-law Steve, and my nephew Larry.
You more than others know this about this great country, so don’t let a few turds get you down. In the end the good guys really do win so long as we keep the faith, baby.
JohnD| 5.10.10 @ 8:45AM
The problem with all of these Wall Street firms, is that they handle other poeples investments, while having an equity position in the market themselves (i.e. they own their own stock portfolios). This means that they keep the "good" stocks for their own accounts, while pusing the bad stocks on their clients. When the "good" stocks in thir own portfolios go bad, they push them on their clients to dump them out of their own portfolios at the best price. That they do this is beyond dispute, as any stock broker will tell you if he is honest. This creates a conflict of interest.
Secondly, they have preferred "million dollar clients" who get the good information, and who get in on their lucatrive IPOs. (Note: "Million dollar clients" include not just the super-wealthy but Senators and Congressmen who oversee Wall Street and banking regualtion). Small investors are the suckers who get the bad stocks dumped in their accounts when the Firms decide to get them out of their own portfolios.
My solution: If you handle trading accounts for clients, your company should be forbidden to own and manage its own equity portfolio. This includes subsidiaries, shell companies, etc. You either trade your own stock, or advise clients - never both.
Tim*| 5.10.10 @ 8:52AM
Speakin' of pornography , Goldman Sachs is guilty of Gross Naked Shorting .
Arrest Those G-S Perverts !
Tim*| 5.10.10 @ 9:26AM
These Goldman Sachs Big Boys appear to be fixing the deck with the cooperation of their DC Buddies against the small retail investors .
This investigation is a head fake , slap on the wrist so far.
Follow The Money Trail .
R Martin| 5.10.10 @ 9:39AM
I have noted for some time and with some regret the decline in the quality of Mr. Stein’s writing and thinking. This piece is one of his worst.
When Mr. Stein addresses economic matters one must always bear in mind his background. He is the son of Herbert Stein, an economist and advisor to presidents in the 1970’s, who is credited with coining the term supply-side economics. The elder Mr. Stein meant it as a term of derision, and his son even made fun of it in his iconic appearance in the film Ferris Bueller’s Day Off.
Even though the Obama administration likes to refer to the current economic climate as the worst recession since the 1930’s, that is not the case. Far from it. The worst economic climate since the 1930’s was the decade of the 1970’s, characterized by stagflation, high interest rates, weak economic growth and a 70% decline in the stock market. That ghastly era ended when Ronald Reagan adopted the supply side economic policies of Jack Kemp, Art Laffer and others, and 25 years of prosperity followed. So, on matters economic, Mr. Stein must be read with a grain of salt and a lot of caution.
Mr. Stein laments the focus on “how many”, despite it being part of the human condition. “How many” dollars did Mr. Stein accept for taking the easy task of piling-on Goldman Sachs or suggesting the intellectually shoddy comparison of GS with Enron and Drexel Burnham Lambert? Mr. Stein implies money is more important to Goldman Sachs than ethics and pride, although he has no way of knowing that. Even without thinking too hard about it one can conclude Goldman did not build its reputation over the past century and rise to the top of its industry without treating its clients ethically and helping them prosper. Yes, that means make money.
The SEC charges against Goldman were filed after the commissioners were split along political lines. Yet Mr. Stein is critical of Goldman’s defense and calls it mendacious flak. Two of his points stand out. Goldman’s buyers in Abacus were big boys, and caveat emptor was not an issue. GS did not underwrite the security; it simply made a market and, as it was a synthetic security, the buyers knew someone was short the other side. Finally, Mr. Stein’s assertion that Wall Street caused the recession is his weakest and laziest. Recessions are caused by many factors (and indeed are unavoidable due to the business cycle) including inflation. The current recession was caused largely by inflation in the housing market which caused a bubble that had to burst. It was always going to burst; Wall Street didn’t burst it. More important, that bubble was caused largely by government policy which created the factors for housing inflation.
A bit long, sorry about that, but this silly piece pushed my button. I’m afraid Ben has gone all wobbly on us.
Steve| 5.10.10 @ 9:52AM
Well.........Mr. Stein has always had a remarkably saccharine streak of sentimentality; I think it has simply amplified with age. A nice man, to be sure, but increasingly irrelevant.
Aaron| 5.10.10 @ 7:52PM
Agree. Good, thoughtful post.
Wall Street did not cause the problems we are muddling through. The "conflicts of interest" that everyone is so concerned about are a tempest in a teacup and, if they exist, did NOT cause the problems we are facing.
Bubbles and the bursting of them are fundamentally part of the DNA of the business cycle, and it is a matter of record that they have been with us for hundreds of years if not more.
What is also true is that bubbles and their inevitable popping are usually severly exacerbated when government interferes with the normal information signaling investors use to make decisions.
Tim*| 5.10.10 @ 9:55AM
There should be an investigation of former G-S'er Hank Paulson appointees former G-S'ers Dan Jester & Ed Liddy & The AIG Bailout.
Dan Hirsch| 5.10.10 @ 9:59AM
Ben, Ben, Ben;
I love you man, but sometimes the most obvious things completely elude you.
"Caveat emptor" is not the law, as in statute; it is the law as in fundamental common sense. If there's one lesson coming out of the financial markets over the last century and a half, it's this: Legislate all you want, but we can always craft financial arrangements that meet your laws, but still fleece the fools.
One fundamental problem with derivatives is that there is no requirement for a buyer or seller to have an interest in the object of the derivative.
That's why I can't buy life insurance on total strangers - life would become very dangerous to "total strangers..."
Tim*| 5.10.10 @ 10:15AM
Goldman Sachs individual employees and Pac money donated $ 994,795 to Obama's campaign.
Follow The Money Trail .
Tim*| 5.10.10 @ 10:30AM
John Paulson, leader of the $33 billion hedge-fund firm Paulson & Co., helped Democrat Chuck Schumer collect nearly $100,000 in the first three months of this year. Schumer is running for a third term in November.
Schumer, the third-most-powerful Democrat in the Senate and a member of the Finance and Banking committees, is a key player in financial reforms under debate in Congress.
Follow The Money Trail .
PolishKnight| 5.10.10 @ 10:38AM
I think the porn industry should be insulted at Ben's comparison. A beautiful woman having sex on camera isn't necessarily immoral and certainly isn't in the same category as cheating someone to make money.
It's useful to put into perspective that things have changed since the days of the Bible. Back then, women didn't choose who they would marry so marrying or dating for money, which is fundamentally what most women do today, wasn't a factor.
For many young men (including myself), porn was a relief from the burden of killing oneself, as many men literally do, to get sex. In this era, desperate young naive men who have sex out of wedlock in a dating environment risk getting stuck with unwanted bastard children that will haunt them for the rest of their lives. What is moral about that?
A 30 year old former porn star is probably a more trustworthy bet than a 30 something career woman lawyer.
Eric(OfConservativeMind)| 5.10.10 @ 4:44PM
Hrm... You have an interesting point. Masturbation, in itself, does fulfill a certain biological need of ridding oneself of his seed.
On the other hand, I would not advise married men to become consumed with pornography; Lest they abuse their wives with negligence. Women are sexual beings as well, and a wife has emotional and physical needs that her husband should work fervently to tend. Sex within marriage is a beautiful thing, indeed.
As for G-S, if they are caught with their pants down outside of the law, they should get an authoritative shafting. Until the law becomes maliciously unjust, as citizens and groups of citizens(companies) we are beholden to the authority of the State.
PolishKnight| 5.11.10 @ 10:58AM
"lest they abuse their wives with negligence". Men really can't win can they? Either they're beasts bothering women with their advances or they're "abusing" them with neglect.
If women are sexual beings, then they have a personal responsibilty to express their needs rather than being passive and pretending not to like it. They have no problems expressing their needs to go shoe shopping!
Dai Alanye | 5.10.10 @ 10:46AM
Scoff all you want, credulous G-S defenders.
True, Ben has his biases but it's difficult to escape the facts that Goldman Sachs has placed its minions in many a successive national administration, and backed them with huge donations to powerful politicians, thereby profiting hugely as a result.
If this latest peccadillo, regardless of guilt or innocence, ends with them having poked a stick into their own eye, I'll not rush to their defense.
Bob K.| 5.10.10 @ 11:20AM
This is Ben Stein at his best! An essay on human nature and hubris and the foibles of men and how they react when caught with their pants down when the Laws of Unintended Consequences affect their best laid plans!
Dawson Kid| 5.13.10 @ 2:55PM
Who reads Ben for his legal or investing advice? I though everyone read him for his 0ver-the-top but spot-on satire. He has a knack for rubbing the salt into a wound in a fashion which is highly pleasing to a lot of us old-fashioned folk who still think honesty is the best policy, though not the road to bragging-right riches!
Jerry| 5.10.10 @ 12:09PM
Ben, you forgot the "We're just market makers" story. You know, the bit about just being middlemen who bring buyers and sellers together at an agreed upon price with no particular fuduciary responsibility to either party.
If this is the hellhole into which the brokerage business has devolved, I want no part of it.
David Williams| 5.10.10 @ 12:35PM
That's the beauty of our system, Jerry. If you want no part of it you can simply leave it. All those people who deal with Wall Street do so precisely because they do want a part of it. Participation is voluntary. Wall Street does, in fact, perform a very valuable function in our society and economy. BTW, if you are one of those who think Cap & Trade is a good idea for saving the planet, who do you think is going to do the Trade part?
Tim*| 5.10.10 @ 12:13PM
Apparently ,The Wall Street Croupiers are dealing from the bottom of the deck.
fundamentalist| 5.10.10 @ 1:56PM
I love Ben, too, but his take on the G-S suit is seriously flawed. Ben wrote: "Obviously, failure to disclose that we, Goldman, are selling you a security that has been carefully crafted to fail when you have specifically told us you want a security that will not fail, is not full disclosure and the security is drastically unsuitable. "
G-S did not design the bond to fail; G-S could not have designed a bond that would not fail. The Abacus bonds did not fail when all other similar bonds succeeded. Abacus was a mortgage-backed bond. No mortgage backed bond created by anyone succeeded in the end. They all failed. If the bonds that Paulsen picked for Abacus had been excluded, Abacus would still have failed. The whole purpose of Abacus was to bet for or against a continued rise in housing prices. Nothing G-S did caused housing prices to fall. All instruments derived from mortages failed because of the collapse in housing prices; not one survived.
JP| 5.10.10 @ 3:54PM
You are correct: The bond didn't fail. People need to understand that it was nothing more than a bet that the real estate mortgage market bubble would pop. And there are 2 bets that are made; the long bet, and the short bet. Paulson had GS construct the fund with the riskiest mortgage securities in order for him (Paulson) to reap the largest return in the case of a correction. Someone had to be willing to bet that these securities would still continue to perform during the life of the bond. If the market continued to rise for another 6 months, Paulson would have gotten creamed.
fundamentalist| 5.12.10 @ 1:10PM
"Paulson had GS construct the fund with the riskiest mortgage securities ..."
The derivatives with the less risky mortgages didn't do any better than those with more risky mortgages in them. All derivatives based on mortgages, risky or not, crashed because the housing market crashed.
Tim*| 5.10.10 @ 2:43PM
" Goldman, criticized for not disclosing it had received notice last year of the likelihood of SEC charges, discussed several investigations on Monday, including probes by the Financial Industry Regulatory Authority and the UK's Financial Services Authority related to CDO offerings and related matters.
The bank said it is cooperating with a number of investigations and reviews into its sales and trading operations related to corporate and government securities and other financial products.
The firm also said it is facing investigations and reviews relating to the 2008 financial crisis, including the establishment and unwinding of credit default swaps with American International Group Inc. Goldman has been criticized for benefiting from the government rescue of AIG.
Inquiries into the financial crisis are also looking at Goldman's transactions with Bear Stearns and Lehman Brothers.
Goldman also disclosed that it is subject to inquiries related to its transactions with the government of Greece, including financing and swap transactions."
JP| 5.10.10 @ 3:49PM
I think most people lose sight of why we even have such exotic financial tools as CDSs and the like. Believe it or not they do serve a purpose - risk management. Large funds managers will take both long and short positions on a variety of high risk issues. They use very complex algorithims to gage risk, and they carefully place thier cash in strategically placed options in order to hedge thier bets. In the end, they may win a percentage point or 2 no matter what the markets does.
It should also be noted that Goldman couldn't issue this highly risky, highyl complex synthetic CDS without someone willing to take a long position. Paulson had Goldman carefully construct the the option in order to maximize the returns in the case of a real estate market correction. He put up $200 million of his own cash; and most important of all he had to get the timing correct. If the option was due in Oct 2008 and the market still grew, he'd be out of all of his investment plus any interest if he bought on margin, plus Goldman's fee. From the sounds of it, there were plenty of banks and investment firms who were willing to ante up the money. A German financial institution got the bid. Everyone, I mean everyone believed that the market would continue to grow well into 2008-2009. I don't think anyone would have changed thier mind no matter who was taking the short option.
So, the idea that Goldman was betting against thier investors is nonsense. In this case, Goldman is like the house dealer. There will always be someone thier betting against. Again, there must be someone willing to go against the option in order for these things to work. Whether they're going long or short someone will lose. Paulson in this case got lucky and made over $2 billion. Goldman et als got clobbered.
In the end, it is all gambling. I'm not sure it can be done, but these kinds of derivatives should be outlawed; but to do that the government must get out of the housing and finance markets. For it is the government that creates the confusion and the risk.
Tim| 5.10.10 @ 3:53PM
If there is a hell, there must be quite a few financial people in it.
Eric(OfConservativeMind)| 5.10.10 @ 4:55PM
"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it's issuance." — James Madison
http://www.lovethetruth.com/go.....quotes.htm
Rest upon your laurels and contemplate the role of the Federal Reserve in our economy...
Clinton nee Publius| 5.10.10 @ 6:30PM
I understand Mr. Stein's comments and appreciate his column/blog/whatever. I get concerned when the government says it is going to "reform" something, because; inevitably, that thing being "reformed" is really being corrupted at our expense. This is always the case due to the practical application of Rational Choice Theory by units of government. If government actually solves the problem at hand, then there is no further reason for government to exist and government would (therefore) be reduced in size. Government will NEVER voluntarily reduce its own size; it just isn't going to happen.
The last time the government "reformed" the finance industry we were treated to 100 years of gaffes, panics and financial craters courtesy of the Federal Reserve System Act of 1913 and the Securities Act of 1933.
The Federal Reserve System Act created both the central banking system and a "new" commercial banking system - both of which routinely crash and fail because our financial masters just can't get enough of having a financial monopoly exist that forces all stakeholders in the private-sector economy sustain the financial services sector - and undertake this continued support at the sole risk, liability and expense of everyone BUT the financial services sector. Mr. Stein left out this little bit of inconvenient truth, but like porn, the action is too good for Wall Street to pass up. Our financial services sector will stop crashing as soon as we decide to step away from the central banking system and fiat money policies that do not work - including the entire "concept" of creating currency using the liability-expansion method that has clearly failed again and again and AGAIN. We will also have to admit that fractional-reserve banking really is an advanced check-kiting scheme and it has to be replaced or we will be victimized by Capitol Hill and Wall Street until we do replace it.
The reality is that Mr. Stein is correct on the one point that really does spell "reform". It's disclosure. Fraud cannot happen when there is complete transparency. Just like porn, complete transparency is what will make people pay attention, instill confidence and lead to real satisfaction over the long-term. Everything else is corruption under the color of authority. Like a lot of the offerings of the porn industry, we've already been to this movie enough times to know how it ends, so we can skip the t-shirt. Give us real transparency and nothing else matters.
F. D. Asaro| 5.13.10 @ 12:36PM
Have you every read King David's prayers in the Psalms? There are about 71 of them. In them he appeals to God for justice because of the wicked people who are indulging in gross and ungodly activities. God answers his prayers by wiping out those who continue in wickedness. Today, we can
ask Almighty God to judge their activities and
bring them down...like bankrupcy. Never underestimate the power of prayer. David imprecatory prayers are there for the righteous persons to pray to stop the vileness in our culture. Remember, when you pray "Thy Kingdom come,
thy will be done" the Lord takes that seriously when you desire HIS Kingdom to destroy wickedness and abominations in God's sight. Who are the righteous ones on the earth at this time. Read the scriptures and see for yourself.
Don| 5.14.10 @ 7:24PM
God's too busy watching 28-30,000 kids die each day from disease and starvation to deal with the more mundane "wickedness and abominations" of the financial markets.
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