Facebook Too Big to Fail?

by Michael Auslin

Facebook is a typical American success story: innovation, creating a market where none existed before, growing a profitable company. Yet did its initial public offering on NASDAQ last week expose more of the rigged game that is American higher finance? I think a healthy stock market is indispensable to a functioning free economy. But I don’t know what to make of reports like this one in the Wall Street Journal that, as trading problems and lack of interest in Facebook’s stock became apparent, the price was manipulated so as to avoid a loss on the day:

Morgan Stanley, which led a group of 11 Wall Street banks, stepped in to buoy the share price, according to people familiar with the matter. In its role as the deal’s so-called stabilization agent, Morgan Stanley could continue to support the shares through a pool known as an overallotment.

If there was no appetite for the stock, why shouldn’t it have dropped below the opening offer price? Isn’t that what the market, and its supposedly superior ability to translate information into economic value, is designed to do? If you bought Facebook on Friday, then you apparently got stuck with overvalued stock. How does Morgan Stanley’s action increase confidence in the market’s rationality and unbiased functioning (let alone Morgan Stanley’s judgement)? I guess that’s why I’ve never been offered a job in the world of high finance.

I’ve never been a big fan of Facebook. Like Rich and others, I find it a waste of time, and pretty creepy that people post personal details from their lives for all to see. However, I’m looking forward to posting on my Facebook page my disbelief that it was considered too big to fail.

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