Inside Job: Facebook I.P.O. Shows System Is Broken

The New Yorker:

Monday morning’s big fall in Facebook’s stock hardly came as a shocker. It was clear on Friday that, at the offering price of $38 a share, there were more sellers than buyers.

Read the whole story at The New Yorker

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Comments

[stumanchu35]

10:26 AM on 05/22/2012

What does FB manufacture?

[knapstellar]

02:57 PM on 05/22/2012

I hope "Credit Default Swaps", because I hear that's where the money is.

[neopolitical]

10:21 AM on 05/22/2012

When will people learn, companies that have no assets and only some nebulous internet marketing plan are worth near nothing not more than manufactures like Air Bus, Boeing or GE. I thought the dotcom bubble would have wised up the common investor.

[SoCalM]

10:24 AM on 05/22/2012

Greedy is as greedy does.

[Mariana Pavetto]

10:15 AM on 05/22/2012

Very good article. Though, it being an "inside job" is in many ways the nature of the beast. I agree that it is early in the game to tell where the stock will go, but I don't anticipate it going up anytime soon. There is no momentum to be built. The timing of the IPO to sharp-shoot the market was bound to leave the average investor out. It started out too expensive. If it had been issued last year --and cheaper-- it would have seen a healthy increase by now.

[Katina Cooper]

10:14 AM on 05/22/2012

No, this couldn't have been an inside job. I mean, just because the small stock buyers couldn't get confirmation for 15 to 20 minutes while the the big brokerage firms got their buys and sells in microseconds doesn't mean a thing.

[Aneesia]

10:12 AM on 05/22/2012

The people were taken as suckers again....guess who made the money ?

[bikerdude]

10:19 AM on 05/22/2012

The ones who started the company?

[Aneesia]

01:09 PM on 05/22/2012

The ones that set the initial market price.

[rmaxearnest]

10:11 AM on 05/22/2012

Now the general public, at least those that invest in the stock market, now know how the Winklevoss twins felt.

[sulafineart]

12:10 PM on 05/22/2012

Zuckered!

[Carl Caroli]

10:11 AM on 05/22/2012

This has been going own for over a decade. And worse, employees were often made patsies in the process by being given options as part of their compensation package as an incentive to work 80 hour weeks, while those options didn't even vest until well after the IPO date, at which time the market value was often below the strike price the options were awarded at, making them totally worthless. Many of us in the tech industry were severely burned by this, while management, venture capitalists and institutional traders walked away with our rewards. The fact that this still occurs a decade later is mind boggling, but as P.T., said, there's a sucker born every minute.

[emily00011]

10:11 AM on 05/22/2012

All the experts warned that it was grossly over-priced. Lots of people got carried away in the excitement without bothering to do their research. You aren't supposed to be in it for a quick buck or because everyone else is. Long term investment! Does FB even have a long term? It's yet to be determined.

[Hannibal55]

10:57 AM on 05/22/2012

Now, Zuckerberg knows the hurt feelings of being unfriended by his investors!!!!!

[jeffbiss]

10:06 AM on 05/22/2012

This is precisely what happened before the stock market crash prior to the Great Depression, insiders were driving the market for their benefit through the expectations of the clueless masses until collapse. What this illustrates explicitly is that economics is not about reality, it's about the human mind and how our delusions drive us.

In fact it proves free market theory a failure, as reality shows that the freer the market the bigger the bubble rather than more accurate the price. The fact is that Facebook is nothing but a data mine and no users would pay for using it but companies will pay a premium for that user provided information, maybe. Zuckerborg didn't do anything but create a scam. Big deal. And made out like a bandit.

[InLosAngeles]

10:15 AM on 05/22/2012

Not only does an unfettered free market work, it works with the efficiency of something created by nature. It's only when we corrupt it with crony capitalism, bailouts, and try to affect outcomes does it break down. A free market is truly something to behold. It is not sympathetic, it does not pander to politics, and lobbyists have zero effect. I agree with your disgust, but your disgust has nothing to do with a free market.

[jeffbiss]

10:53 AM on 05/22/2012

Sorry, but free markets do not exist, except at very small levels, as everyone tries to game the system to their advantage, including using whatever power they have to wrest control from competitors. You cannot extricate politics from markets as politics is what humans do, as we're social animals. Free markets a delusion.

[Hannibal55]

11:02 AM on 05/22/2012

In other words, the human element corrupts the free market system making it useless for anything but teaching grade school economics theory!!!!! The human nature and desire to make the biggest buck at the least cost is the driver of the free market!!!!

Scams and scoundrels abound!!!!!

[TheSocialCapitalist]

09:58 AM on 05/22/2012

FB is down another 6% today. Facebook has lost almost a 1/5th of his value in its first two days of trading without underwriter support.

[bikerdude]

10:23 AM on 05/22/2012

Are you equating company value with the stock price? Is Facebook any less viable as a product/company than it was a week ago? The "market" is fiction...

[hg wells]

09:54 AM on 05/22/2012

Any pension fund manager that jumped in to this early should be fired.

[p mersault]

10:01 AM on 05/22/2012

Agreed. If you are that close to the industry and couldn't see this coming you have no business managing someone else's money.

[hg wells]

10:10 AM on 05/22/2012

yep...either they are incompetent or they were bribed.

[The Dude67]

09:53 AM on 05/22/2012

Morgan Stanley Board to Ben Bernanke:

"Ben we need $100B in liquid capital for 48 hours".  Ben says, "No problemo, keep it a week if you like".  

$100,000,000,000 of money is created (backed by our tax base) and sent to Morgan Stanley.  Now they have the capital to "prop up" i.e. fraudulently manipulate, the FB IPO.

We give the power to create UNLIMITED amounts of U.S. Dollars to a small group of men.  They call themselves The Federal Reserve so as to dupe the average citizen into thinking they are a government agency.  They are not.  Look in a Washington Phonebook.  You will not find them in the blue government pages, you will find them in the white pages along with every other private-for-profit business.  

This is insanity.  Demand the end of The Fed and a return to sound fiscal policy - one that rewards old fashioned hard work and honest competition.  

Peace.

[jeffbiss]

10:12 AM on 05/22/2012

But this is the new "hard work". This is what happens when an economy matures and real production doesn't create the return demanded by the investor class, financialization becomes the new reality, money through money and scams like facebook. Thus the bubble grows as expectations grow of ever greater returns through purely financial games, whether subprime loans, CDOs, credit default swaps, IPOs, or whatever else Wall Street can come up with.

[The Dude67]

10:16 AM on 05/22/2012

Take away The Fed and fractional reserve banking - problem solved.

[SoCalM]

10:21 AM on 05/22/2012

And nobody gets prosecuted....

[bikerdude]

10:25 AM on 05/22/2012

But, but Big Jamie D is part of the Fed... Are you saying that they are gaming us? Heaven forbid!

[The Dude67]

10:29 AM on 05/22/2012

They're "job creators" so I'm really go out on a limb by knocking them, but... yes I'm afraid it's true.

[BartRoberts]

09:51 AM on 05/22/2012

Facebook IPO was a pump&dump??? Ya think???

Heck, a large % of Facebook's activity has been pump&dump from the start. But, what do you expect from a website with virtual real estate and where the most common item of news is what high school acquaitances had for lunch?

[KHAAANNN]

09:50 AM on 05/22/2012

All IPO's are "inside jobs".
That's the idea, jack up the price as much as possible with hype and clean up, then get out early leaving the slim pickings to the "orphans and widows" and big pension funds.
All of Wall Street works on the J.T. Barnum idea: "There's a sucker born every minute".

[Changeover]

09:49 AM on 05/22/2012

System is broke?  Libs smell some new regulations and let the mouth watering begin.  FB will My space as sure as the laws of Entropy.

[p mersault]

10:02 AM on 05/22/2012

I don't think there needs to be any more regulation. The system has successfully broken itself. Good luck to anyone looking to IPO in the future, there will be little demand for shares.

[Changeover]

10:07 AM on 05/22/2012

Any cyber vapor company such as a so called 'news" site that spouts marx stuff will not have any demand.  Another Harley or other real company's goes public the interest is the same.

[bikerdude]

10:28 AM on 05/22/2012

But the crooks are still mugging the citizens. When will someone pay for the crimes of this white collar gang? Who will enforce even the Regs we have in place now" Certainly NOT Eric the Absent or the SEC or anyone else with their hands in our pockets.

[Rocks911]

10:07 AM on 05/22/2012

How about any regulation at all.

[bikerdude]

10:30 AM on 05/22/2012

How about even a modicum of enforcement? Tons of regulators sitting back, skimming their share and then looking the other way... That there is a high level of corruption in the enforcement is a foregone conclusion.... Who is going to fix that? The President has to step in and demand enforcement. People did this and people need to pay...