for-profit traders short sell for-profit schools

7/15/2010: From Sharona Coutts at propublica.org, hat tip to Margaret Soltan:

Short sellers have shown a steadily increasing interest in for-profit schools, according to Will Duff Gordon, an analyst at Data Explorers, a company that collects and analyzes data about short-selling. Since April, his company has also seen a spike in short positions in the sector, indicating a strengthening view that the stocks will fall. In general, short sellers place bets that a company’s stock or some other financial instrument will decline in value.

“This is not an opportunistic bit of short selling,” Gordon said of for-profit schools. “People have worked out that these companies are overvalued. They’ve put on bigger and bigger short positions as the price keeps going down. And they have been right because the price keeps dropping.” For their part, short sellers claim they are merely bringing to light the fundamental problems of an industry that survives in large part on taxpayer largesse.

Such as?

As much as half of the money lent to students attending for-profit colleges and universities will never be repaid, an Education Department projection says. Default rates at nonprofit schools are far lower. 

I’m no economist, but I believe this means that the medieval not-for-profit university model may have a few more centuries left in it. But read the rest of the Coutts story for evidence that the short sellers may be manipulating the market. I’m shocked!