I released the following statement today on the appearance of hedge fund manager Steve Eisman, portfolio manager at FrontPoint Financial Services Fund, a Morgan Stanley subsidiary, at the Senate Committee on Health, Education, Labor and Pensions hearing, Emerging Risk? An Overview of the Federal Investment in For-Profit Education.
"In their hearing today, the Senate HELP Committee is ostensibly looking at higher education but the appearance by Steven Eisman makes the whole event look like a scam by Wall Street hedge funds and stock short sellers who place financial gain above all things including higher education.
“Inviting Eisman to a HELP Committee hearing on a sector he is short-selling is like asking an arsonist whether a building will burn down. He’ll say, “Yes” but that is because he plans to burn it down.
“Unless the Committee plans to grill Eisman on his stock shorting against higher education stocks, the invitation of this hedge fund manager is inappropriate because the hearing will influence the stock prices of companies that he is currently short-selling.
“Eisman is known from his role in author Michael Lewis’ book The Big Short: Inside the Doomsday Machine for short-selling practices that helped crash the mortgage securities market. Bets against subprime mortgages helped FrontPoint double its hedge fund to $1.5 billion by the end of 2007. Eisman made his billions off of the crashed dreams of millions of homeowners.
“Now, Eisman has trained his stock-speculating guns on the higher education sector; and he is using today’s Senate hearing to do one thing: win regulations against companies in order to decrease their stock value. Could the committee possibly expect unbiased testimony? No. Eisman has staked a fortune on government action against higher education companies. Eisman wants the hearings to hurt those companies so he can make more money.
“This isn’t just speculation about Eisman. He has said it himself. During a May 26, 2010 speech at a hedge fund conference in Manhattan, Eisman promoted increased federal regulation of higher education as a means to assure that stock prices of for-profit higher education would fall by as much as 60 percent. And now this hedge fund manager is leveraging a Congressional hearing to take more short-selling profits.
“To assure the fairness and objectivity of these hearings, Congress should ask Eisman, on the record and under oath, to disclose any short sell bets that FrontPoint Partners or any funds connected to FrontPoint or Eisman has made regarding higher education companies.
“Congress should not be manipulated by Wall Street hedge fund speculators and stock short sellers. They’ve caused enough damage to our economy already.”
Heather Booth of Americans for Financial Reform called the passage of the Senate bill a "major step forward." We agree. Heather Booth:
Today the Senate took a major step forward on this historic Wall Street reform bill that will hold big banks accountable for costing 8 million Americans their jobs and bringing our economy to the brink of a collapse. The big Wall Street banks are fighting every step of the way to weaken and defeat this bill. Even as the big banks and their buddies in the Senate see the train is leaving the station on Wall Street reform, they are lying down on the tracks, trying to block the engine. While their appalling defense of the big banks has become a predictable pattern, it’s no more tolerable each time it happens.
The Senate bill stops banks from recklessly gambling with our money and sheds light on the behind-the-scenes deals that went on at places like Goldman Sachs.
The bill needs to be further strengthened in negotiations with the House. There are still important issues to be addressed. These changes include Senator Cantwell's language on derivatives and the Reed-Grassley language to make sure private equity managers are regulated. These measures are important to make sure that reform will function as it needs to and loopholes are completely closed. We need the strongest bill possible. We applaud our Senate champions who are fighting for reform.
There's always more work to be done. But, the passage is a major step forward.