Felix Salmon

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.

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.

22 comments so far | RSS Comments RSS

Sorry, smacks of conflict of interest, but sadly I guess the only people who are willing to the right thing are those who can profit big-time from doing so? Robin Hoods all! If he is sued by those who are long, does that make his conflict of interest less reasonable?

Recruiter from Ashford University Barron’s at the bottom to see that he is at least “right”, albeit not very righteous.


Posted by hsvkitty | Report as abusive

does mattzie disagree with anything Eisman is saying? how many times do we have to go over this: it doesn’t matter WHO says it, or WHAT their underlying position is. what matters is WHAT THEY SAY.

felix – i wish you’d take advantage of your vast audience to make more of an example of moronic arguments like Mattzie’s. you were far too kind to him.

Posted by KidDynamite | Report as abusive

felix – this post (by mattzie) has me really fired up, on account of the pure ignorance of it. what a d-bag. perhaps he gets donations from the companies Eisman is shorting? is there a way to find that out?

Posted by KidDynamite | Report as abusive

“Sorry, smacks of conflict of interest …”

Sorry, it is not good enough for something to “smack” of conflict of interest for you to have a point. Where, specifically, is the conflict? Which, specifically, of Eismman’s claims do you think is wrong? Why?

Matzzie rails against short interests offering criticism on the grounds that if their criticism is heeded, they will profit. Bizarrely, he seems blind to the corollary: long interests will profit if we follow their self-serving advice. The end-point of this style of thinking is that nobody who knows anything about the subject should be allowed to offer an opinion.

Posted by Greycap | Report as abusive

The conflict is clear, Eisman is highly incentivised to paint the for-profit education industry in the worst light possible.

Perhaps “conflict” is too strong. He is certainly biased.

Are the senate really that dumb? (Probably…)
They know full well that Eisman is biased.
I don’t know, perhaps they will ask some for-profit education companies to testify – of course, they would never have a conflict or be biased…

As KD rightly points out, all that matters is what is said and the truth, no matter who delivers it.

Posted by TinyTim1 | Report as abusive

I agree with you on your point regarding Eisman and conflicts of interest. However, I don’t understand the broader issue. We have 90bn in Title IV loans available every year. Students can use these loans at accredited institutions – for-profit, non-profit, private, public, etc… Because of the highly competitive nature of the industry, for-profit institutions tend to cater to lower-income and minority adults. Is the problem distribution? Are people angry that we are subsidizing the higher education of lower income people, who tend to naturally default higher on their loans? Are we really comparing this to subprime mortgages? As a society (where public investment in education has great positive externalities) I agree we probably shouldn’t force poor people into homes they can’t afford, but is this the same as giving people an education that maybe (at max) only 20% or so can’t afford? What am I missing? Are schools not competitive enough? Community colleges certainly compete for the same students. Should we not subsidize education for the less fortunate?

Posted by eli_whitney | Report as abusive

@Greycap, what we have here is interests that are not clear. I am not a lawyer… and if you are you look at the letter of the law it would still seem Eisman has stakes in making the schools fail so should not be testifying!

I look at it as a private citizen who would care about the students and tax payer funds being wasted or used inappropriately. Just whose interests are important here? The student, the shareholders? the school? the Hedge fund managers? If the interests are conflicting ethically then they are still conflicting.

“Eisman promoted increased federal regulation of higher education as a means to assure that stock prices of higher education companies would fall by as much as 60 percent.”

I think you feel I am ignorant, but dear sir, I am not. I am just commenting as I see it.

@eli_whitney the short sellers knew full well WHICH of the sub prime mortgages were being sold to those who would default and some had a hand in that same pie. I still hope that the petty criminals involved will been linked and we will hear more, but being money buys closed mouths manipulating the losses!

Also the shopping of mortgage bonds and reselling so they are untraceable to the original source will make the SECs job much more difficult, but one can hope the links are still there. The paperwork from the top has been shredded.

Some Hedge fund managers really were taking enormous risk, then there are those who manipulated the risk. In this case, it is manipulation.

On subsidies:

Of course there should be subsidies but with well thought out regulation so that the system cannot be abused. Subsidies should not be handed out like candy in the first place. A minimum 3 days at a school means subsidies were given?! HELLO? Buy the books, have it be incremental and linked to the student making passing grades not the 3 days showing up! That way those who are serious about education will get the grants and schools who are serious about educating can get subsidies.

What the world needs is more people with moral compasses and less who are greedy.

Posted by hsvkitty | Report as abusive

how are you guys still missing the point? this isn’t even debatable: Matzzie offered ZERO evidence to refute Eisman’s thesis, and merely resorted to an “attack the messenger” campaign. I said it above, and i’ll say it again until it’s clear:

” it doesn’t matter WHO says it, or WHAT their underlying position is. what matters is WHAT THEY SAY. ”

if Matzzie disagrees with Eisman’s thesis, all he has to do is explain why. “Eisman is a short seller” is not an acceptable answer.

Posted by KidDynamite | Report as abusive

Steven Eisman’s testimony makes sense, as anybody who’s properly read it is likely if not bound to agree.

Tom Matzzie on the other hand makes about as much sense as any other would-be mainstream neoliberal which is to say, practically none, ever.

Second guessing aside, Eisman’s market position may or may not not be either relevant or as clear to some as his words, but it is to the latter that the more serious attention ought to be given.

It’s up to the Senate to permit or deny Eisman’s participation in their debate. If I’m amazed they did, it’s because he covers a fair amount of ground and doesn’t pull too many punches, to which I believe bipartisan government bodies tend to be almost entirely unacclimatized.

Posted by HBC | Report as abusive

@HBC, while the meat of Eisman’s words makes perfect sense, it really should have just been taken on paper, being he read from a speech he had made earlier and was already in print anyway, with references to his short position so that everyone understood that.

@Kid, While there is a possibility he has some feelings for the students, it cannot be denied he has ulterior motives, but it seems the only ones who are watching where your taxpayers money is going are those who also benefit. Just how sad is that? Are all schools fraudulent? Do all provide less education? Will his testimony hurt yhe good schools?

While I understand there is obvious ill will here for a fellow blogger, which seems to be 90% of your point, he is allowed his opinion , as am I. Eisman is not a nobleman and present day Robin Hood, although many liken him to that role. Although he links the fraud in for profit education to the sub prime mortgages, he wasn’t a whistle blower; he was part of the problem and wallowed in it.

This looks like another case of the fox watching the hen house and makes it all so much less credible. It does matter who says it! Whether you like it or not, it is like a jail-house confession. You need to weigh the source and wonder how credible it is. If you need to use the testimony, you better have more credible sources and if you do have them, why taint the proceeding?

I see Eisman as a profit before people person. Nothing more. That you see Eisman as more of a positive influence in your financial view of the world then I do, does not make you more right, nor entitled to deny me my view.

Posted by hsvkitty | Report as abusive

hswkitty: this is really really not a hard concept: just because Eisman is a short seller doesn’t make him wrong. full stop. note: I’m not saying he’s right! but if you think he’s wrong, you need to argue WHY! Matzzie did not do one OUNCE of that. his post was analogous to racial profiling – saying that just because Eisman has a certain stock position (short) means he’s wrong. nonsense. i won’t argue this anymore – it’s asinine.

you don’t need to weigh the source. that’s EXACTLY the point – you weight the FACTS. it does NOT matter who says it – it matters what is said.

Posted by KidDynamite | Report as abusive

hswkitty – i think your confusion lies in your “jail house confession” analogy, which is horribly misplaced: Eisman is not arguing that the CEO of COCO is a bad guy because they had a meeting where the Evil CEO made a comment illustrating his evil-ness that cannot be corroborated. He’s not putting forth testimony in a court of law as an expert witness.

Eisman is proposing data which supports his thesis. is it possible that Eisman is selecting only the data that backs his position, and selectively ignoring other data or explanations that hurt his thesis? OF COURSE! and THAT is precisely what someone writing a critique of Eisman’s thesis should give examples of, which again, Matzzie didn’t even sniff at.

Posted by KidDynamite | Report as abusive

If either of them is biased, both of them are biased. But only one of them is casting stones. The other’s speaking to the topic in a constructive manner.

Eisman, calm and collected, duly disclosed his material position.

Matzzie, hot and bothered, declines to disabuse his neoliberal slant.

If there’s any other light in which to portray pie-in-the-sky edutainment boot camp usury than a bad one, won’t somebody – anybody, please, with or without alleged conflict of interest – turn it on? Either way, it needs lighting up, not a hot oil massage.

Posted by HBC | Report as abusive

Hey kid, putting words in my mouth and changing the gist of Mattzie’s blog, do not make you more intelligent nor right. Although you do not like Matzzie, he was making the point of conflict of interest and arguing alignment of interest is just another poor excuse to make a profit and deny moral issues. He never said Mattzie was wrong; he said Eisman had too much to gain in his biased position to be testifying against the schools!

Jail house confessions aren’t from expert witnesses BTW … and while this isn’t a court of Law, his testimony should be complete and accurate as he is being called upon to testify.

My analogy was not for a court of law, but to remind that his “testimony” will be tainted. As “compelling” as you believe his thesis to be, was it written to enhance the proceedings or to enhance his portfolio? I know you all wish to “believe” he is Robin Hood, I think you have your heads in the sand. It DOES matter where the information comes from. You show this yourselves as you hate mattzie and are in awe of Eisman.

What Eisman writes is probably true of many corrupt schools. But being he is ensuring even good schools are harmed, monetarily and by reputation, and being his position is to short, and being he is testifyling AGAINST the schools, being he is regurgitating a speech rather then referring to his documentation from his “extensive” investigation he should not have been asked to testify.

Your U.S. Government Accountability Office should have requested his documents and used them, along with student complaints to probe the schools and then have that group testify, citing the schools in question. THAT would be an aligning of interests that didn’t manipulate the markets! (which was the reason for his blog, but you won’t allow his his say because you don’t LIKE him)

Quoting Mattzie:

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

Worse than the conflict is that the entire Senate hearing plays into Eisman’s strategy of creating a giant circus about higher education companies. The bigger the circus, the lower the stock price and the more money Eisman makes. The U.S. Senate shouldn’t have a leading role in a Wall Street investor’s “gambling” strategy — especially a short-seller.

The threat a short seller represents to companies isn’t false. The ginned-up threat of regulation or the suggestion of legislation has already been driving down the stock prices of these companies.”

Posted by hsvkitty | Report as abusive

Paragraph one, line 5 “He never said Mattzie was wrong; ” should have been, “He never said Eisman was wrong;”

The fact that all of you so heartily disagree means you might wish to look at your moral compass and see if it is slightly skewed.

Posted by hsvkitty | Report as abusive

hsvkitty – your complete inability to comprehend the very simple points here is exactly why Matzzie’s propagation of ignorance is so dangerous – because you are the norm. MANY people don’t understand, even though it couldn’t be simpler.

a World Cup analogy came to mind. John Harkes does the announcing for the US games for ABC. as the former captain of Team USA, he is about as far from unbiased as one can get. He loves USA soccer. He probably has the cell phone numbers of many of the players in his phone, and talks to them frequently. He wants them to win. Yet that doesn’t mean that his analysis of the game is incorrect. It merely means that if one is going to argue with John Harkes, one has extra reason to try to find flaws in his argument, because we know he is biased. It does NOT mean that Harkes is wrong just because he is biased.

you continue to dwell on some made up hero worship i have for Eisman. although i think he’s a stud for having the foresight to have seen in subprime what others did not, i am not arguing the merits of Eisman’s argument AT ALL. He may be wrong – if you want to prove him wrong, you need to DEBUNK his thesis and offer alternative explanations for the data he observes. By calling him a short seller who profits from the decline of companies, all one does his highlight their own massive ignorance and inability to make a cohesive argument.

when one knows that Eisman has incentives, it gives one EXTRA reasons to try to critique his arguments. please note – critique the ARGUMENTS, not the MOTIVES.

the fact remains (FACT – no interpretation necessary) – Matzzie did not criticize a SINGLE ONE of Eisman’s arguments. see if you can grasp that simple, simple simple concept. it’s my entire point – Matzzie chose to shoot the messenger rather than debunk the message. Fail.

Posted by KidDynamite | Report as abusive

kitty – it’s especially depressing and saddening that you bring morality into this – it means you were fooled/mislead. See, morality has nothing to do with it. logic and reasoning, the ability to form a coherent thesis and debunk an argument that makes no sense are the subject at hand. It is not my opinion that Tom Matzzie did not dispute a single one of Eisman’s theses – it’s a fact. It has nothing to do with my “moral compass.”

this is especially unacceptable since Mattzie (and EVERYONE ELSE – which is important – Eisman doesn’t hide his position!) knows that “Eisman has staked a fortune on government action against higher education companies.” Guess what – that’s your signal that you might want to look extra hard for something to debate in his logic! Yet, Matzzie did not. Fact – not my opinion, and nothing to do with morals.

Posted by KidDynamite | Report as abusive

hsvkitty – i can only hope this will be my final comment. You should make sure you read the report put together by the senate

http://harkin.senate.gov/documents/pdf/4 c23515814dca.pdf

and Harkin’s summary:

http://help.senate.gov/newsroom/press/re lease/?id=62eb7738-aa26-4ccb-8a5c-592bba 5cf09d&groups=Chair

the (alleged) immorality here is not on Eisman’s part, but rather on the part of the companies that are being looked into. in Harkin’s words:

“Evidence suggests that for-profit schools charge higher tuition than comparable public schools, spend a
large share of revenues on expenses unrelated to teaching, experience high dropout rates, and, in some
cases, employ abusive recruiting and debt-management practices. What distinguishes for-profit schools
from public and non-profit private institutions is that they have an obligation to maximize profits for their
shareholders. Indeed, securities law sanctifies the notion that each corporation must act in the interest of
its shareholders. However, this imperative could conflict with the objective of Federal student aid programs,
which is to increase access to a quality higher education. This evidence, and the potential conflicts
underlying it, points to the need for rigorous government oversight and prudent regulation to safeguard the
investments of taxpayers and students.”

and the paragraph before that, lest you worry that Steve Eisman’s actions will make it so that kids can’t get an education:

“For-profit schools are an important part of the mix of postsecondary institutions. They increase access to
higher education by providing needed capacity as well as innovative options that can make it easier for
students to complete their postsecondary education while managing work and family obligations. Enrollment
in for-profit schools has grown dramatically over the past decade and, each year has seen a larger
share of Federal student aid dollars flowing to these schools. Congress and the U. S. Department of Education
have a duty to ensure that for-profit schools spend these Federal dollars efficiently and effectively.”

Posted by KidDynamite | Report as abusive

You grade me a fail? Are you 15? You forgot to say PHAIL, so I know you are at least older then 12… I guess you really are a kid…

A soccer announcer being compared to testimony in a senate hearing? The announcer does NOT have an effect on how the game is played! The outcome of the hearings will have an effect on the markets, the schools, shareholders, the students, the reputaion of the students and schools, the future of the students and the schools and Eisman’s pocketbook.


This is a hearing… and he is being called to testify at a hearing. This is not a hearing to line anyone’s pockets and it is unethical to do so. The hearings are always to be in the interest of the taxpayer and public trust. He is being called to testify AGAINST the schools.

YOU keep saying he must be proven WRONG and keep repeating that… as defense to YOUR argument. but that is not the point of his blog and never was. It is YOUR point and FELIX’s point.

You keep going back to Mattzie, but Mattzies’s message had nothing to do with your point. His point was that the schools will all bear the cost of his words WHETHER HE IS RIGHT OR WRONG. The markets are being manipulated by his words.

The outcome of these hearings is to hopefully change the for profit schools so that they will not waste taxpayers or students money or place them into unnecessary debt or be fed false information. THAT is what the hearing are for.

That is not Mattzie’s job, that is the the job of the senate probe and the Government Accountability Office. (and well before it being brought to light by the a person who will most profit from it)

After being made a hero in the book, I am sure Eisman has many people drooling and green with envy so it IS a point. Who questions the master? No one will even know how compelling his evidence is until the probe is complete.

Meanwhile, the outcome of the hearings affects the stocks,the schools and their reputation, the students and sadly the ability to get jobs even though their schools were accredited.

I still do not think Eisman should have been asked to testify (oh excuse me, read his “thesis”) as his position and the OUTCOME of the hearings, which are set by name to be AGAINST the schools, are in his interest. I believe the Senate Ethics Committee should have disallowed his appearance for that reason and nothing, nothing, nothing you say will change my mind.

And after having said all that, I do not deny you your argument against the lack of criticizing ” a SINGLE ONE of Eisman’s arguments ” in mattzie’s blog, as you are also allowed an ‘opinion’.

It is NOT about Eisman’s bias. Of course he is biased. It is about manipulation of the stock market and public trust in the Senate. The Senate is bound to never be seen to further self interest or improperly further another person’s or entity’s private interests.

Posted by hsvkitty | Report as abusive

Nobody enjoys being seen as “against education”. That would be like being “against homeownership” leaving “a child behind” or being a socialized medicine “commie”. Still, what needs to be said on these matters needs saying, not suppressing.

The difference between the MBS bubble and the education bubble is not that in both cases the underclass is deliberately hosed good and proper, but that in the latter example they didn’t even get the illusion of possibly owning a home to sweeten their financial enslavement. All they get is brainwashed.

It’s unlikely that the Senate will lift a finger to impede the malfeasance of Sallie Mae and the united edufraud squad. It was however remarkable that they sat still for what Eisner had to say, and at least somebody said it. They weren’t likely to invite or listen to Ralph Nader, who has absolutely zero conflict of interest… were they?

In absence of Senate decisiveness (is there such a thing? – more and more the Senate’s just another place white collar crime goes to get whitewashed) the symbolism of shorting educational usurers seems kindred to the spirit of education itself, by other means.

The market itself doesn’t see it as manipulation when you announce you’re coming after something with vengeance. Look at that little whiner Icahn, fer crying out…

In any case, there my admiration for Eisner ends. But my suspicion of Matzzie being an issue-tailgating careerist neolib who’s more concerned with screening messengers than messages that need delivering remains.

Posted by HBC | Report as abusive

yes HBC.. “more concerned with screening messengers than messages”…sounds awfully dangerous, doesn’t it? but the poor uninformed masses are more worried about the damage these darn short sellers do to the economy {sarcasm!} (yep – Matzzie actually said that. I kid you not). Which is precisely why Matzzie needed a sound, swift, harsh rebuttal.

short sellers don’t destroy the economy. Steve Eisman does not destroy public for profit education companies. The companies destroy themselves with their corrupt policies, business practices and decisions – if Eisman is correct.

good luck folks. on to the next topic.

Posted by KidDynamite | Report as abusive

HBC said:

“It’s unlikely that the Senate will lift a finger to impede the malfeasance of Sallie Mae and the united edufraud squad. It was however remarkable that they sat still for what Eisner had to say, and at least somebody said it. They weren’t likely to invite or listen to Ralph Nader, who has absolutely zero conflict of interest… were they? ”

I reiterate, it is NOT about Eisman’s bias! Of course he is biased. It is about manipulation of the stock market and public trust in the Senate. The Senate is bound to never be seen to further self interest or improperly further another person’s or entity’s private interests.

I have never denied that what he had to say was important! it is just sad that it had to come from that source. And if you had read anything I said, I never denied Eiman’s the points! the fact remains his appearance is in his favour and self interest, NOT the students or education or for the good schools.

HBC< There were regulatory changes even before the hearings began, which hopefully do only good things and will not hurt the good schools.

And KID you tire me thinking I didn't read anything before I spoke and that I am uninformed! As a parent I am thinking like one. I did read. AT least I am not just a talking head, spewing a dislike and calling Mattzie a dbag which is really all this thread is about.

(admit it boys… you give a flying crap about education or the schools or you would see his appearance could taint the proceedings and the outcome in a negative way and Kid you said you were done with me many spews ago … what if Eisman isn't entirely correct? then it is ok to destroy them all? I see…)

Posted by hsvkitty | Report as abusive

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