NEWS

In an interview with CNBC, Austan Goolsbee, a member of the Council of Economic Advisers, said the Goldman Sachs case underscores the need to end conflicts of interest. “[T]o me, blanket bans on all short selling seems–seem like a bit of an overreaction,” he said.

TRANSCRIPT FOLLOWS:

QUICK: Austan, the other big story that’s happening in Washington today is the Goldman Sachs hearings before Senator Levin. And obviously, the SEC case focuses very much on fraud aspects and alleged fraud, whether that was there or not. But some of the topic and the tone that we’ve already heard that’s going to be coming before the Senate committee this morning has to do with whether or not short selling should be allowed. What’s your take on short selling?

Mr. GOOLSBEE: Well, the stuff about short selling, I think, is only a minor part in this–in this endeavor. You know–

QUICK: It’s been some of the loudest commentary coming from Senator Levin today, this idea of shorting things, should that be legal or not.

Mr. GOOLSBEE: Well, that’s interesting. I mean I’m an economist, so I guess I don’t see that banning short selling is–is as productive as is trying to end conflicts of interest, which are some of the issues that are raised in these cases and in this hearing.

QUICK: Right.

Mr. GOOLSBEE: You know, so one of the aspects of the so-called Volcker rule is whenever you have commercial banks that are engaging in proprietary trading for their own account, you can frequently get yourself in a position where their trading is at odds with what’s in the best interest of their client. And whenever you’re in that situation, I think it can be a little–you know, it can get a little dicey.

QUICK: I ask this because our guest host today is Bill Ackman, and we’ve been talking about some of the services short sellers can provide. They were the first to point out Enron and Bill’s here with a book today about what happened with MBIA. But I guess my question is, do short sellers sometimes provide a service in the market?

Mr. GOOLSBEE: I mean, I think it’d be hard to say that if you looked back through the recent financial history of the last 20 years that there was never a moment that the short sellers did provide information. I think they have provided information. As I say, to me, blanket bans on all short selling seems–seem like a bit of an overreaction. But as I say, that may be one of the loudest components today, but when I look at this case, I think the most central features are those about the conflicts of interest. And I said the other day, I don’t think that the CEO or anybody else is going to win any popularity contests when ordinary Americans’ houses are falling through the floor, people get foreclosed everywhere and then they’re reading about the profits that somebody’s making on it. But I think the conflicts of interest is really an issue the president wants to crack down on.