Short-seller demonization watch, Tom Matzzie edition

By Felix Salmon
June 24, 2010
Tom Matzzie, for reasons which are very unclear, has decided that he's going to wage a media campaign against Steve Eisman -- and, by implication, in favor of the predatory higher-education scam artists that Eisman is looking to cut down to size. Matzzie is a credible left-wing campaigner, which makes his current bedfellows very odd ones: he's essentially defending companies which take billions of dollars from the government and put the onus to repay that money onto "students" who are very unlikely to even graduate, let alone get the kind of job which will let them repay the loan. Eisman's testimony to the Senate today is compelling stuff, and it's backed up by the testimony of the OIG's Kathleen Tighe; judging by today's hearing, no one outside the for-profit education industry, bar Matzzie, is remotely willing to step up to defend it.

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Tom Matzzie, for reasons which are very unclear, has decided that he’s going to wage a media campaign against Steve Eisman — and, by implication, in favor of the predatory higher-education scam artists that Eisman is looking to cut down to size. Matzzie is a credible left-wing campaigner, which makes his current bedfellows very odd ones: he’s essentially defending companies which take billions of dollars from the government and put the onus to repay that money onto “students” who are very unlikely to even graduate, let alone get the kind of job which will let them repay the loan. Eisman’s testimony to the Senate today is compelling stuff, and it’s backed up by the testimony of the OIG’s Kathleen Tighe; judging by today’s hearing, no one outside the for-profit education industry, bar Matzzie, is remotely willing to step up to defend it.

Yet Matzzie insists on trying to do so, on the grounds that Eisman is short the sector:

Steven Eisman wants the regulation of higher education to get rich — not because it will be good for students or the schools. And now this hedge fund manager is leveraging a U.S. Senate hearing to take more short-selling profits.

A short-seller investor will always have a conflict of interest when speaking about a set of companies and that is why it is inappropriate to invite Eisman as an expert witness. He will typically always want to portray those companies in a bad light in order to generate news that would drive down their stock prices. His financial conflict of interest biases his testimony beyond redemption.

Could the committee possibly expect unbiased testimony? No. Eisman has staked a fortune on government action against higher education companies.

A conflict of interest happens when you have two different interests which are in conflict with each other: I see no conflict of interest at all here. To the contrary, I see an alignment of interests: Eisman has realized that if the government does the right thing, then he’ll make money, and so he’s more than happy to show the government everything he’s been able to find out about these companies.

It’s not the job of Senate committees to take testimony only from the “unbiased”, were such people to exist. It’s their job, rather, to find out the truth of the matter and act on it. And if Eisman can help them to uncover that truth, so much the better. After all, it’s not as though Eisman is trying to pull one over on the Senate: he’s entirely open and honest about his short position, and indeed it’s the promise of profits on that position which has allowed him to research the sector in such depth.

Eisman puts it like this:

Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive as the subprime mortgage industry. I was wrong. The For-Profit Education Industry has proven equal to the task.

He’s taking on that industry head-on, in public — which is a dangerous thing to do, as a long history of short sellers before him can testify. I hope this story turns out well for him. And I hope that at some point it will become more obvious why Matzzie is leading the charge against him. I can’t find any record of Matzzie having railed against short sellers in the past; I wonder why he suddenly cares so much about the issue now.

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