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Zen and the Art of Motorcycle Maintenance

Real Time Corruption: Facebook Bailed Out on Day 1


Yesterday Facebook went public … meaning that almost anyone on the planet can buy a stake in it. What follows is from an article from the Wall Street Journal:

Morgan Stanley, which led the platoon of 11 Wall Street banks that arranged the listing, had to dip into an emergency reserve of around 63 million Facebook shares—worth more than $2.3 billion at the offer price—to boost the price and create a floor around $38 a share …

The process is common in IPOs and works like this: The underwriters have the extra shares available to either sell or buy for a period after the IPO. If demand is strong, they sell them like all the other shares. But if the stock price falls, they can buy them back, effectively creating a floor for the price.

Facebook’s price began falling almost immediately after shares began trading. It is unclear exactly when Morgan Stanley stepped in, but traders said that the price movements throughout the day, with the shares occasionally touching the IPO price but never crossing below it, suggested the firm was active throughout much of the session …

Lead underwriter Morgan Stanley received about 38% of the IPO shares to distribute, while J.P. Morgan got 20% and Goldman Sachs Group Inc.’s allotment was roughly 15%. Morgan Stanley is expected to command the largest percentage of more than $175 million in fees from the IPO.

If I understand correctly this means that trading may have ended with these large banks as owners of a large portion of the offered stocks … and that means that a major portion of the $16 billion dollars that Facebook “raised” was actually paid for by those banks … the same banks that nearly tanked the world economy and were bailed out by government taxpayers money.

So essentially, on its first day of trading, Facebook was bailed out by American taxpayer money … while greedy banks cashed in on transaction fees and Mark Zuckerberg and his friends simply cashed in. Now Zuckerberg can take some “real” fake money off the table, Facebook can afford to stumble or fail at the expense of people who can’t afford it and Zuckerberg can use his money to, say, become a venture capitalist and invest in other destructive businesses (he will probably funnel some of his money to curing some disease or feeding some hungry people or some other “worthy” cause)… repeating the cycle … indefinitely.

Please tell me again, why can’t share price fall below their target price during an IPO?

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