Sunday, February 27, 2011

This Week on Frontline....Something Unexpected

I noted that there will be a repeat of the story about the for-profit schools.

College, inc.

Digging around on the website, I found a section documenting the response to the subject.  I stumbled across a letter in which directors of homeless shelters railed about how the schools were deliberately recruiting students from the homeless ranks and sticking them with a worthless degree.  That in itself is not news. 

However, Frontline then revealed something a tiny bit odd about the origin of the letter through a link:

Down the rabbit hole we go...

To simplify, what they are saying is that there is a certain group of people who buy stocks in these companies with the expectation that the shares will drop in price so that they will short sell  the stocks.  What's more, they have gone as far as to engage the services of others to publicly trash these companies so that they can help increase the drop in price.

Now, I'm not saying that these schools that promise you a degree in basket weaving are noble heroes.  What I want to know is why is this phenomenon not more widely known or taken into account in media coverage?

Sure, I can legitimately see this happening, so I'm not questioning the validity of the article.  It's just that I can't see publicly traded universities being the only investment out there that is the target of special interest groups such as this.

It's a bit like the bubble all over again.  Many of those companies raised capital fairly quickly and spent it down to nothing in the span of a year or more by wasting it on everything from salaries that were out of step with the market, high dollar advertisements, and fancy amenities.  In the end, certain people cleanly walked away with some of that money.  Yet, even though it was staring everyone in the face, it wasn't until these companies gasped their last breath and had their bones danced upon by the Feds that anybody really bothered to assess what was really going on during that time.

I personally find this sort of thing to be interesting because it adds another depth to the discussion.  In essence, the very owners of these schools (stockholders are owners of corporations, n'est-ce pas?) are praying for their product's destruction.  They are glad for every single one of those homeless people who come out saddled with $80,000 in debt and nothing to show for it beyond an associate's degree in polishing turds because those people only function as an argument for the stock price to be driven down.


  1. Winners know how to play both sides of the market.

  2. Thanks for that play

  3. Investment game theory: It is not to win big or clean. It is to win!

  4. Hello:

    I am afraid that you are confused about short selling.

    An investor (trader) would never purchase a stock to "sell it short". If they did this, they would have a "neutral" position. That would be like betting on the pass AND the don't pass line on a craps table...

    They borrow the stock from their broker and THEN they sell it. The trader immediately receives the cash from the sale. They then owe their broker the number of shares they borrowed.

    The trader is wagering that they will be able to buy the stock back (to give to the broker) at a much LOWER price than when they sold it. This is how someone makes a profit at "shorting" a stock.

  5. Ok, yes, but the end effect is that they want the price of the shares to go down at a later date so that they can realize a profit from the transaction.

    And sure, the act of selling it short is a legitimate business, but what I'm concerned about is that if there are groups out there who are willing to wager such an organized campaign to drive down the price of the item, how can you really trust any of the information floating around out there about anything or whose motives that it serves?

    On the surface of it, campaigning against for-profit schools looks like a populist agenda item. They are contrary to the ideal of the government providing affordable education to the masses, target lower-income individuals, and financially ruin many of them.

    Then again, maybe the campaign wagered does bear some conservative elements. I can see why many of those people would not want their tax dollars to financially bear the cost of the number of defaults those schools create....and a subset of those people just happened to make a few bucks off of it in their campaign wagered against those schools. It seems odd, but then, I might be giving too much mental separation to profit-making activities and issues of the public good.

  6. I don't understand how the "for profit" schools are either conservative or liberal.

    It is not in the interest of the country, nor Republicans or Democrats to have these schools ripping people off with substandard educations at grossly inflated prices.

    The short sellers can drive down a price of a stock in the short term. In the long term, they can't bring a good company down.

    The sooner the "for profit" schools lose their student loan eligibility, the better. If they shut down as a result, so be it.

  7. I think of these schools as being a product of "conservative" thought because of the profit motive (the CEOs make millions), and because their methods of operation have freed themselves from some of the oversights of government.

    While a typical "bleeding heart liberal" (such as a person who runs a homeless shelter) may worry if the students are being taken advantage of and call upon some sort of oversight, a business-minded conservative would look at it as caveat emptor. Depending upon how it affects that conservative, they may take a more Haliburton approach and not care if the CEOs make out like bandits with the taxpayer money that funds student loans, or they may be angry that their tax dollars are being wasted on a bunch of irresponsible people who have wasted their tax dollars on a joke venture, and who are just going to intentionally default and then run to the next Walmart and stage their next slip and fall after intentionally impregnating themselves so they can get welfare and food stamps.

    Not only that, but it was the Republican party who pushed for privatization of grade schools, or to give vouchers so that people could choose to send their kids to private schools.

  8. most homeless shelter operators (volunteers of america; common ground hdfc; etc.) have staff's with six figure salaries and often receive equity in the real estate the operate for municipalites, consequently, they would be more likely to be looking to open up an annex of a for profit school on site, or some kind of recruitment bonus...they want in on the action. homelessness makes poverty pimps rich...