Eisman's Next Move

http://www.futureofcapitalism.com/2010/06/eismans-next-move

We've been following the press coverage of fund manager Steven Eisman's attack on for-profit colleges. The latest development: a New York Times story, with no mention of Mr. Eisman or any other managers short the colleges, which says, "For-profit colleges have less than 10 percent of the nation's college students, but get about 25 percent of all federal student-aid disbursements." The article begins:

Concerned about the disproportionate share of federal student aid flowing to for-profit colleges, several Democratic lawmakers on Monday asked the federal Government Accountability Office to investigate the for-profit institutions, in terms of both quality and finance.

"Recent press reports have raised questions about the quality of proprietary institutions," said the letter signed by the chairmen of the Senate and House education committees and others.

There's no consideration of the possibility that the reason students at for-profit colleges get more federal student aid is because they are poorer and thus more likely to qualify for more aid. Also no consideration of the possibility that students at for-profit colleges are more likely to be first-generation college attendees, and so don't benefit from the "legacy" admissions preferences that the non-profit colleges grant to children of alumni.

I'm not saying that for-profit colleges are perfect, nor am I saying that the Washington Post Company, whose board includes Warren Buffett and Melinda Gates, should get a big government subsidy for its money-making education programs delivered through Kaplan. But the non-profit colleges aren't perfect either, and they get big subsidies, too. The difference is that there aren't hedge fund managers out there shorting non-profit colleges.

This is how the shorts do it, though: First generate negative press coverage, then gin up a government investigation based on "recent press reports." At a certain point, it becomes a self-fulfilling prophesy. Never mind investigating the for-profit colleges -- someone should investigate the way the short sellers use the press and the government to drive down the prices of stocks they target.

by Ira Stoll  |  Jun 22, 2010 at 7:57 am Related Topics:  Education, Press receive the latest by email: subscribe to the free futureofcapitalism.com mailing list