Sox First

© walknboston

Yesterday I did a blog entry looking at the finger pointing going on over Facebook's disastrous IPO. It has fizzed after Friday's debut and has closed at $31 after Friday's debut of $38 and 8.5 per cent off of the opening bell price.

And so now, and it can only happen in America, the lawsuits are starting to come in. Reuters reports that Nasdaq is being sued by an investor who claimed the exchange operator was negligent in handling orders for Facebook and that in a separate action, a lawsuit is being filed against Facebook. People lost money on the IPO, the only ones that made anything were the banks like Morgan Stanley and Goldman Sachs which picked up millions of dollars in fees. The lawsuits are seeking justice but the system is the real problem here.

At the same time, regulators are now hauling Morgan Stanley, the bank that led the IPO, over the coals and looking at whether it selectively informed clients of an analyst's negative report about the company before the stock started trading. If they did, someone should throw the book at them.

Vanguard CEO Jack Bogle has summed it up nicely, saying it was all inevitable. "This is a classic example of investor greed, including institutional greed and underwriter greed and company greed," he said on CNBC's "Street Signs" program. "So the message is, when all the parties to a transaction are greedy, this is the kind of outcome you can expect."

It's all a dangerous game.

© pingdom

Facebook's stock market debut has been nothing short of underwhelming with the stock fizzling after Friday's debut. On Monday, it finished 11 per cent down. Of course, it was only the investors that lost out. The banks that did the underwriting cleaned up, as they always do. According to the San Francisco Chronicle, Goldman Sachs pocketed $235 million selling its stake in Facebook's IPO, doubling its money on a bet it made on the social-network giant in 2010.

And now the fingers are starting to point. Reuters reports that Morgan Stanley, the lead banker in the IPO, reduced its revenue forecasts for the company. That was after talking up the initial price to $38, ignoring the advice of others who said Facebook's fundamentals weren't right. "They overplayed the enthusiasm and probably just misread the atmosphere of the marketplace," said Keith Wirtz, who oversees $15 billion as chief investment officer at Fifth Third Asset Management told Bloomberg.

In the end, what brought it undone was greed.

Facebook actually increased the number of shares being sold in the IPO by 25 per cent last week to 421.2 million. It also raised its asking price to a range of $34 to $38 from $28 to $35. This is the perverse part. Had Facebook kept the original terms, investors might have actually made some money.

Instead, the stock only got to $38 because Morgan Stanley intervened to prevent it from falling below the IPO price. After that, the price collapsed. And the banks were the only ones who made a profit.

© fdecomite

And so the Greek tragedy continues. It's not just a financial issue, it's a humanitarian crisis. According to the latest reports, the country will stay in recession until next year. The forecasts by the Paris-based Organisation for Economic Co-operation and Development actually assume that Athens fully implements a European Union/International Monetary Fund plan of reforms under a 130 billion euro rescue package to make its economy more competitive and repair public finances. And no one knows for sure whetehr that will happen with the place headed for an election on June 17.

Greece is a humanitarian crisis. As reported here, unemployment in Greece is now running at 22 per cent, Over the past three years, unemployment there has roughly doubled, and Greece has lost more than 10 per cent of its output. Homelessness is up by 25 per cent, 80,000 businesses have closed down and there's been a 57 per cent increase in HIV infections from the previous year, most of that coming from drug abuse.

In an interview with The Guardian, leftist leader Alexis Tsipras says Greece has descended into hell. "We have never been in such a bad place. After two and a half years of catastrophe, the Greek people are on their knees; the social state has crumbled; one in two youngsters is out of work; there are people leaving en masse; the climate psychologically is one of pessimism, depression, mass suicides. We cannot accept that this is the future of a European country. And precisely because we recognise the problem is European, and it will spread to the rest of Europe, we are sounding the alarm bell and are appealing to the people of Europe to support us in an effort to stop this descent into what can only be called social hell."