Barry Ritholtz discusses the importance of McClatchy’s big investigative report into Goldman Sachs (GS) and its conflicting behavior throughout the housing meltdown. According to McClatchy, “In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.” So they knew what they were doing the whole time. But, as Ritholtz points out, the real focus of the investigation lies in a few key areas: Whether the bank misled borrowers, the bank’s involvement in offshore tax havens, how GS deployed lawyers to repossess homes foreclosed under their own faulty mortgages, and on the bailout packages that helped GS that were issued under Henry Paulson. Ritholtz quotes Laurence Kotlikoff, an economics professor at Boston University, who asserts, “This is fraud and should be prosecuted.” Ritholtz, though, seems to believe that an SEC prosecution wouldn’t stand up in court. He imagines Goldman’s response would be: “Of course we did not know the future ... After the fact, it may look like prescient, but an investment opinion is not the same as knowing the future. That is, of course, impossible.”

Paul Krugman wags his finger both at the economic “conventional wisdom” du jour and at President Obama for even talking about it as though he is a believer. He writes, “Not a day goes by without my reading some assertion that ‘markets are anxious/jittery/worried about the deficit’—an assertion based on no evidence whatsoever.” Krugman is a proponent of more stimulus money in order to sufficiently deal with the high unemployment rate and is not concerned about the deficit spending, citing low interest rates on U.S. debt and CDS spreads. On Monday, the President told his Economic Recovery Advisory Board, “The government is going to have to get serious about reducing our debt levels.” Noting Obama’s “unfortunate tendency to echo ‘centrist’ conventional wisdom,” Krugman hopes his economic advisors will counsel him otherwise.

Brad DeLong stands up for his buddy Krugman today. Ned Phelps wrote in the Financial Times that Keynesian economists, “take the position that fiscal “stimulus” of all kinds is effective against slumps of all causes.” And the staunch Keynesian Krugman responded forcefully, saying “Nobody, and I mean nobody, holds that alleged position.” But DeLong takes a more hard-line approach and imagines what he would have said were he Phelps’ editor:

An editor should have asked: ‘Who are you talking about who takes the position that fiscal 'stimulus' of all kinds is effective against slumps of all causes?’ And then should have killed the column.

There’s a lot of tension in the economics blogosphere today.

This just in: Felix Salmon is back stateside. Can hardly wait for his return to blogging tomorrow. Let's hope he’ll show us pictures from Spain.