A CREW'd Response.

If you haven't read it yet, go check out Mike Elk's article about how some progressive leaders ended up working alongside the for-profit higher-education industry to fight new student-loan regulations. It's a blockbuster story, and it's already garnered a good deal of attention -- including a response from Citizens for Responsibility and Ethics in Washington (CREW), the government watchdog group at the center of the story.

It's not a very convincing response. CREW misconstrues our article, saying that we were wrong to write that CREW alleged financial impropriety at the Department of Education. That's not what we printed. Elk writes that CREW was "alleging that Eisman influenced them and the department's regulatory proposals." That's what their FOIA request [PDF] says (CREW links to a different request in their response).

Incorrect nit-picking aside, let's return to the substantial conflict at the heart of this story. CREW, Lanny Davis, and Tom Matzzie all make the argument that they're only interested in ensuring that Steve Eisman, an investor who specializes in short-selling, doesn't profit from his testimony about for-profit colleges, while remaining totally agnostic about whether or not the new regulations are a good idea.

As Josh Rosner, managing director at independent financial research consultancy Graham Fisher & Co. tells the Prospect, "It's virtually impossible to take a short position and then try to talk down a stock if the fundamentals are against you. If a short identifies a real problem, alerts others, and they agree, the stocks go down."

I don't carry water for short-sellers -- indeed, I thought that Michael Lewis' book The Big Short, which featured Eisman, was problematic because it glorified short-sellers too much. Eisman does have a financial interest in this issue, which he's never bothered to hide, but so do the for-profit schools. In a post on this issue, CREW Executive Director Melanie Sloan wrote the following:

[T]here may be a concerted effort by those who stand to benefit financially to drive down the stock price of certain for-profit schools. Knowing this, how can we be sure that the new regulations the Department of Education is proposing are really in the best interest of the Americans most likely to attend these schools?

We know CREW didn't bother to ask education experts whether the regulations were in the best interest of Americans attending these schools. We also know that there is definitely a concerted effort to protect government subsidies to these schools. If CREW is really interested in government waste and corruption, then the real problem is with the subsidy, not investors who might profit from ending them. When you add in the fact that none of these critics disclosed their relationships, financial and otherwise, with the for-profit industry and their lobbyists, the math suggests that good faith is missing and they owe the public an explanation.

Here are important questions that CREW has refused to answer:

  • Is the for-profit higher education industry, including John Sperling, funding their organization?
  • Why have they gotten involved in this specific regulatory dispute and no others?
  • Why did they not consult experts on education policy or short-selling before complaining to the Senate and filing FOIA requests?
  • What are the connections between CREW Executive Director Melanie Sloan and Julian Epstein, president of the LawMedia Group, a lobbying firm specializing in astroturfing that is working on behalf of for-profit colleges?

-- Tim Fernholz

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