I was going to title this post "Tom Matzzie is an idiot," but I don't love starting internet flame wars, although it seems that Matzzie clearly deserves it in this case. Felix Salmon wrote a coherent post debunking Matzzie's shit-sandwhich of an article, which attempts to discredit Steve Eisman's thesis against the for profit higher education companies by demonizing Eisman and short sellers in general. The only problem is that Felix's post was too kind, and didn't make an emphatic enough point. Felix calmly slapped aside Matzzie's mosquito of a claim that Eisman has a conflict of interest - in Felix's words:
"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."
Here's the point - since it seems that many people still have trouble with this simple concept: it doesn't matter who wrote the article or made the argument. It doesn't matter what their underlying position is. What matters is WHAT THE ARGUMENT IS. So, in this case, unless you are disagreeing with anything Steve Eisman is saying, it makes not an ounce of difference that he is short the stock, that he works for a hedge fund, that he bet against subprime mortgages, or that he likes comic books. It doesn't matter if Steve Eisman is a vegetarian, or if he only eats candy bars. It doesn't matter if he didn't graduate from high school, or if "Steve Eisman" isn't even his real name. It doesn't matter if he's a democrat, republican, socialist, capitalist, illegal immigrant, or if his parents came over on the Mayflower. What matters is his thesis, which, of course, Tom Matzzie didn't make a single mention of.
Although I personally think Eisman makes a pretty good case, it's irrelevant - Matzzie didn't even bother to take on a single one of Eisman's claims or data points (from Eisman's testimony):
"The for-profit education industry accounts for 9% of the students, 25% of all Title IV disbursements but 44% of all defaults. And the President of the largest for-profit institution is paid nearly 25x the compensation level of the President of Harvard. There is something wrong with this statistical progression..."
"The bottom line is that as long as the government continues to flood the for profit education industry with loan dollars AND the risk for these loans is borne solely by the students and the government, THEN the industry has every incentive to grow at all costs, compensate employees based on enrollment, influence key regulatory bodies and manipulate reported statistics – ALL TO MAINTAIN ACCESS TO THE GOVERNMENT’S MONEY..."
"The core of the problem in both the subprime and the for-profit education industries is a problem of incentives. In subprime, brokers were incentivized to make as many loans as possible because they were paid on volume. They faced no risk of loss due to bad decision-making because the loans were sold off to investors. In for-profit education, every segment of the institution is incentivized to enroll as many students as possible – recruiters are paid on volume, instructors are compensated based on completions, and executives and shareholders are paid based on growth. None bear the risk of loss should the students not get their money’s worth or even worse, default on their loans. The incentives to grow far outweigh the incentives to educate. And thus, like in subprime lending, rather than having a fundamentally sound industry with a few bad actors, you have a fundamentally unsound industry with few good ones."
Matzzie started his column with the attention getting intro: "Sometimes the ways of Washington, DC are truly baffling."
Indeed, Mr. Matzzie - it is truly baffling that people like you are still able to raise money to accelerate the spread of ignorance amongst the population. A big fat sarcastic "Thanks" to all you're doing to help dis-educate America.
disclosure: no positions in any of the companies Eisman mentioned, or any education related companies.