MF Global, while crashing and burning, lost $1.6 billion – at least that’s what appears to be missing. JP Morgan, for reasons they don’t quite understand, lost $3 billion – by the most recent estimate. And now Morgan Stanley has lost at least $18 billion – but this doesn’t count because it was Other People’s Money (OPM).
There has been no bigger joke on Wall Street than the Facebook initial public offering (IPO). From the beginning up through the sorry slide it’s on today, nothing has worked. There is even a likely Securities and Exchange Commission (SEC) investigation into revised earnings information that somehow wasn’t shared with the public – but a few insiders had a peak at.
If you ever needed proof that big investment banks are nothing but leeches sucking the life out of our economy, Facebook’s IPO is it.
It’s not as if Facebook is worth nothing, given that it does have a $4 billion in sales every year with pretty low overhead and a pool of 900 million users worldwide. The problem is that this works out to $1.21 in revenue per user, an incredibly low number. The trick is whether or not Facebook can grow in a way that makes more off of each user, which is why it paid the insane price of about $1 billion in cash and IPO stock for instagram – they weren’t buying the product, they were buying the talent. They need people who understand mobile apps and they need them fast.
But for all the potential for Facebook to grow and make something more from their installed base than a series of pretend farms, there is huge risk. They haven’t done it so far and there is little reason to believe that they will really be able to cash in on what they have. So how did Morgan Stanley and their friends at JP Morgan and Goldman Sachs handle that for the IPO?
They relied on hype. And they apparently were so busy slapping together the hype they never released the updated revenue figures (not good looking), never figured out how shares would be allocated, never found out how it might overwhelm the NASDAQ exchange, and never tried to figure out how many shares the market could actually hold.
Was that JP Morgan, the investment bank, or Captain Henry Morgan, the notorious pirate?
You might call this a deliberate lie, a deception. Given the way these firms operate, it seems to be something much more sinister. It appears that they never really cared if they were selling a product with any value, the standard operation these days. It was all, as Henry Blodgett called it on CNBC, “Muppet bait”, a reference to Greg Smith’s resignation letter from Goldman.
The technical term for when someone doesn’t even care enough to craft a decent lie is “Bullshit”.
Why should anyone care? After all, the financial world is awash in trillions of newly printed dollars – so a few billion here and there is hardly worth worrying about. Compared to the $700 trillion in derivatives estimated worldwide, about 14 years of the entire product of this planet, $18 billion is what a bank like JP Morgan would see fall into the cushions of the couch. It’s on the order of 0.01% of their entire exposure.
Of course we should care because these games are being played with money that, in the right hands, could be doing amazing things that transform the economy and put people back to work. It could feed families, rebuild neighborhoods, and instill new optimism and pride. A few billion here and there may not be much to them, but to the rest of us it can change the world.
This time, they didn’t just lose piles of money on obscure trades no one understands. This time, they fleeced ordinary folks with real cash that could have fueled real dreams. This time, they crossed the line. This time it was nothing more than a con job.
To compare Wall Street to a casino is unfair – to casinos. An entire generation is growing up deeply sure that stocks are nothing but a con.
Too Big to Fail? Long gone. Too Big to Understand? It’s been a serious problem. What we have now is Too Big to Tolerate.
It is time to destroy the big investment houses before they destroy us.