Facebook IPO Shows What is Wrong with U.S.

Before I get into my rant, let’s back up.  All the way.

Our economy is sputtering. We are still mired in unemployment and slow/no growth.  We have vast and growing economic disparity between rich and poor.  We have, I would argue, even more disparity between have and have-not opportunities born of a broken education system.

We just came through a financial melt-down involving trillion dollar losses on mortgage-backed securities among other things, which required the Federal Government to bail out the major investment banks and supposedly stiffen our regulatory framework.

Steve Jobs is dead.

The one shining star in all this mess is a guy in flip-flops whose goal is world domination through this thing that started out as a way to rate chicks at Harvard.

Okay, now that I got that off my chest I can really tell you what I think.

Morgan Stanley made $100 million on the FB IPO. The guy in flip flops demanded a dual class of stock so no investor (or his board) would have any say in how he runs his company.  He made a cool $16 billion Friday and then got married in his backyard Saturday.

Meanwhile, the NASDAQ completely melted down on the first day of FB trading. The stock didn’t open until a half hour after it was suppose to and thousands of trades went missing from places like Fidelity (you know, where normal people have accounts).  The head of the NASDAQ said afterwards that he should have pulled the IPO rather than let it go ahead with so many errors.

Leading up to the pricing of FB at $38, our boy wonder in the hoody began to realize that the information in the prospectus might be a little rosy.  Yes, GM pulled a $10 million account.  But more important mobile revenue and revenue in general had begun to show signs of softening.  How everyone involved waited until the last possible moment to figure out that the projections being spread all over God’s creation were wrong is beyond me.  Maybe Markie should have taken off his hoodie (we know really bad shit happens to guys of any race in those things) and put on a suit like every other adult in the room.

Anyhow, the company filed an amendment to the S-1 and told some but not all investors the bad news.  Therein lies the rub.  Everything the SEC does supervising a company’s IPO is suppose to provide a level playing field.  In this case it didn’t work out that way.

So while the pediatrician was marrying the richest 28 year old on the planet, his stock was taking it in the shorts. Everybody who bought shares in the IPO got their ass handed to them, as did those who bought the first day of trading.  As the WSJ reported today:

Facebook’s continued fall has put the social network on pace to be one of the worst large U.S. IPO starts in the past five years.

The social network’s much ballyhooed offering was in the midst of its second-straight day of declines, dropping as low as $30.98 today. That would have been an 18.5% drop from its IPO of $38.

The stock has recovered somewhat, to $33. That marks a 13% decline from its IPO price, equal to the worst three-day start for an IPO that raised over $1 billion since 2007, according to Dealogic.

Apparently the 17,200 brokers at Morgan Stanley are having a conference call as I mash away on my keyboard in which the CEO of the company is going to try to explain WTF happened and what they are going to do about it to make it right (you know selling shares based on misinformation and then not even being able to execute the trades properly that were entered into the NASDAQ system).

I think I may have mentioned in prior posts that one of my best friends moved to New Zealand with his family to start a self-sustaining organic farm on the theory that the United States is on the way very soon to an Apocalypse.  I keep telling him that he’s crazy and that we still live in a great country capable of rebooting itself and getting back on track.

But then shit like the Facebook IPO happens.

And I wonder whether maybe he is onto something…

About Tom Matlack

Thomas Matlack is a venture capitalist.


  1. John Schtoll says:

    What amazed me about this IPO is the story on MSNBC about how the banks made a ton of money on this IPO even though the shares when way down and they would have made more money if they had gone down further, something called ‘shorting’.

  2. Copyleft says:

    “He made a cool $16 billion Friday and then got married in his backyard Saturday.”

    And if he didn’t get a prenup, all investors should sell their shares immediately.

  3. Does your friend need a farm hand? Great post.

  4. I think there’s plenty poorly planned (and even shady) about the IPO.

    But can we please stop the ridiculous fetish some people make of wearing suits?

    Bernie Madoff wore a suit. The CEO of Enron wore a suit. And the CEO of the big banks that mismanaged the IPO did too.

    I’m actually reminded of a quote from Daniel Ellsberg, “Whenever I’m arrested, I try to wear a suit; it teaches people that you can’t trust people just because they’re wearing a tie.”

  5. And people wonder why I’m trying to move my family to Belize.

  6. PursuitAce says:

    IPOs are no more than roulette wheels. Pick your color, red or black, up or down. The last thing anyone investing in an IPO should get is sympathy. The entire market is a casino anyway. If your going to play you better learn how to be a professional gambler in the markets versus an amateur. This whole follow Jim Cramer and invest for yourself thing is nonsense. The investing markets will suffer fools, but only until they run out of money.

  7. Oh well! Capitalism: “From which according to his gullibility to which according to his greed” .

    I bet you twitter will have the same problems if not worst.


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