Short-seller Testifies on Capitol Hill Against Private Sector Schools

It seems as though Washington has been abuzz with proprietary higher education this week. And with good reason. The U.S. Senate held a Committee on Health, Education, Labor and Pensions hearing on private sector higher education companies.

One of the more controversial angles to the hearing was the testimony of Steve Eisman – the Wall Street short-seller who is famous for predicting the subprime mortgage crisis and who has made bold comparisons that the education private sector will be the next crisis.

In a Huffington Post blog, Tom Matzzie says:

“The only problem is that the witness, financier Steven Eisman of FrontPoint Partners, stands to profit not from the success of higher education but from stock price declines of a specific group of companies in that sector. Eisman is a short-seller.

Most Americans would think investors lose money when stock prices go down. But a specific type of investor known as a short-seller makes money when stock prices go down, not up. Ain’t America great? The companies go through the grinder, cut employees and investment while some guy on Wall Street gets rich.”

The Hill columnist Lanny Davis also picked up on this and calls for more transparency.

“Let’s concede that, in the for-profit college industry, there are bad apples. Congressional oversight and U.S. Department of Education rules give ample ability to focus on fraud, root it out and end it.

But the notion of pervasive, systemic abuse and fraud as suggested by Eisman, more with innuendo than hard facts, may not stand up to scrutiny.

We need oversight and regulation for sure. We also need full disclosure and transparency by short-seller critics — for sure too.”

It’s a bit ironic that the HELP Committee would summon the testimony of a short-seller while holding hearings looking for problems within the for-profit sector.

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