The Big Short, Inquiry, and For-Profit Education

January 9, 2016 — Leave a comment

BigShortThe film The Big Short based on a book by Michael Lewis– a funny but frustrating recap of the economic crisis of 2008. The last scenes of the film detailed the fallout using a voice over by Ryan Gosling playing the role of Jarred Varnett:

“The banks took the money the American people gave them and used it to lobby the Congress to kill big reform. And then America blamed immigrants and poor people. And this time… even teachers. And when all was said and done, only one single banker went to jail.” (PDF script)

I bolded “And this time… even teachers” because I was surprised to hear such a clear connection between a “they” and “blame teachers” when the film was entirely about the financial industry.

To be truthful, there was some highly entertaining educating going on in the film. The “teachers” were celebrities Margot Robbie (actress), Anthony Bourdain (cook, author) and Selena Gomez (singer, actress) who broke the 4th wall to “teach” audiences about credit-default swaps and collateralized debt obligations. But, as an educator, I have long suspected that teachers have been a convenient scapegoat, even before the No Child Left Behind (NCLB) initiatives.

Upon further investigation, “blaming the teachers” is not the only connection that is made between education and mortgage crisis. The film also highlights how several individual financial advisors saw the financial crisis coming, and then bet against the mortgage market (hence the name “The Big Short”).

In following the path of inquiry from mortgage fraud jumped to education, I found that the financial expert Steven Eisman (played by Christian Bale)  gave a speech in May of 2010 titled “Subprime Goes to College,” at the Ira Sohn Investment Research Conference.

Mother Jones reporter  wrote about the speech (May 2010) titled Steve Next Big Short: For-Profit Colleges He reported that  Eisman compared the for-profit education companies (ITT and Apollo Group) to, “seamy mortgage brokers who peddled explosive subprime loans over the past two decades.”

In his presentation (PDF) Eisman explained how federally guaranteed debt through Title IV student loans,one-quarter of the $89 billion in available, went to these companies that enrolled only 10 percent of the nation’s postsecondary students.

Kroll notes that in this speech -two years after the mortgage crisis, Eisman ended with a warning:

“Are we going to do this all over again? We just loaded up one generation of Americans with mortgage debt they can’t afford to pay back. Are we going to load up a new generation with student loan debt they can never afford to pay back? The industry is now 25 percent of Title IV money on its way to 40 percent…But if nothing is done, then we are on the cusp of a new social disaster.”

Eisman’s warning generated negative attention for him by April of 2011, reported in the CNN Money website, The article noted:

 The Citizens for Responsibility and Ethics in Washington (CREW) called upon the Securities and Exchange Commission to investigate whether Eisman had used his relationship with the Department of Education as a way to  “manipulate the market price” of for-profit education stocks.

By October of 2015, however,Eisman’s warning was being taken more seriously by other federal agencies. According to the Wall Street Journal Marketwatch Report:

The University of Phoenix (Apollo Group) was placed on probation by the US Department of Defense. They have barred recruiting on military bases and are active in “preventing troops from using federal money for classes.”

This must have an adverse impact on Apollo Group; net income growth for as of August 2015 was -131.88%.

Similarly, ITT Educational Services (ESI) reported their net income growth September 2015 as -83.65%. Truth in advertising might be part of the reason for the drop, one of the top bullets on the Consumer Information Page on the ITT website lists one powerful reason that potential students might not enroll:

Credits earned are unlikely to transfer.

The Inside Higher Ed website reporter Paul Fain also wrote about the souring relationship between ITT  and the Department of Education (10/20/15):

Troubles are deepening for ITT Educational Services, with the U.S. Department of Education on Monday announcing stricter financial oversight and reporting requirements on the embattled for-profit chain.

In a letter to the company, the department cited federal fraud allegations against two ITT executives and the company’s “failure of the general standards of financial responsibility” in justifying its decision to tighten the screws.

The attention Steven Eisman brought to the mortgage crisis eventually gave him credibility….and lots of money. He positioned this credibility towards another crisis…this one involving for-profit colleges.

Which starts a new line of inquiry as to who could get the blame this time? OR should audiences expect a repeat:  “And this time… even teachers.”

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