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Posts Tagged ‘Greed’

Facebook Fail

I’m no financial expert which, I presume, is why I’m not a wealthy man. But I’m not an idiot either and I’m telling you right now- this Facebook IPO stuff is an unmitigated disaster that is becoming more and more of an embarrassment by the second.

Let’s start out with the basics. Facebook early this week was valued as a $100 billion company. That’s more than Disney, Visa or McDonald’s. As Washington Post financial writer, Dominic Basulto, puts it- at least McDonald’s sells burgers. What’s Facebook got? What does Facebook make? It makes ads that no one pays any attention to. Ask General Motors. They pulled their Facebook ads just a couple of days ahead of the IPO because it was like throwing money into a large black hole.

We’ve been down this road before in the late 1990’s when the Dot.Com bubble burst. Now it’s the social media bubble that’s bursting. Facebook stock was offered initially at $38 a share. It’s trading at $31 this afternoon, but the day is young- there’s plenty more room for it to fall even further. Your average Facebook employee is about $2 million richer this week. But the poor people who got suckered into buying Facebook stock on Monday have already suffered a 20% loss on their investment—an amazing achievement over just two short days.

Some analysts say in order to justify the share price at which Facebook was being offered the company would have to make more than a 40% profit over each of the next three years. That’s a tall order for any company that actually makes things, much less one that is essentially a large data collection service that can’t quite figure out what do with all its data.

I won’t even go into the speculation about the things Facebook must do to make the kind of money it has to pile up to avoid becoming a penny stock. Maybe selling our personal data? Maybe overwhelming its real estate on your computer with ad after ad after ad? Maybe breaking down and finally charging for the service?

And then there’s Facebook’s growth potential. What growth? It has already saturated the world. A half a billion users are already on it. There’s no way to go but down.

I have a friend who counsels adolescents. He tells me the big social media trend among the nation’s youth is getting the hell off Facebook. Presuming the universal adolescent appeal of “coolness,” Facebook is about the least cool thing in the universe. Their grandmothers are on it, for Christ’s sake. And their teachers. And if they can ever find jobs- their damn bosses will be on Facebook asking to friend them so they can check and see if there are any pictures of them projectile vomiting in an alley after an all-night kegger.

But there’s more. Much, much more. Here are some headlines from Marketwatch.com today so we can all revel in the base greediness and irrational exuberance of the great Facebook IPO.

Facebook Stock Dubbed “Falling Knife”

Why IPO Fizzled

How Facebook Threatens the U.S. Economy

Embarrassment Over Facebook

Here’s an absolute brilliant analysis of all of this by Martketwatch.com’s David Wiedner:

It’s as if Mark Zuckerberg is having the ultimate nerd’s revenge: He’s humiliating all of us and taking our money in the process…

There were few regular people who made fortunes on Facebook. Its private placement and exclusive club made certain that Zuckerberg and his backers decided who would get rich and when….

At the end of a Facebook session, we feel an anticlimax. We hope for contact and more often than not get silence. We exploit our own privacy to our friends, advertisers, strangers. We rarely, if ever, make that connection that’s worth the investment of putting so much of ourselves out there…

In the end, it’s clear Facebook’s was the rare initial public offering in the markets that catered to that same kind of person, an exclusive sort of investor: the sucker.

In 2010, the movie “The Social Network,” told the story of the Harvard nerd who hit it big with his Facebook concept. There’s a sequel ahead that’s sure to be a hit with all those people Mark Zuckerberg has taken for a ride for all these years.   And it will be called “The Fall of Mark Zuckerberg: Avenging the Revenge of the Nerds.”

Cash Hoarding is Killing the Economy

 

It’s a horrendous vicious cycle.  Major corporations, including banks, have the largest cash reserves on record waiting for an economic upturn to happen that will never occur if they don’t spend the money they’re hoarding to hire people and lend to homeowners and small businesses.

It is a self-defeating psychology.  Absent the political leadership that could potentially inspire business leaders to do what’s right, not only for the American people, but for the health of their own businesses- the cycle may wipe us out.

In the U.S., the efforts have been half-hearted.  On December 14, 2009, President Obama called the leaders of the American banking industry into the oval office for what was billed as a good old-fashioned visit to the woodshed.  I blogged about it here that day.  What became of it?  Absolutely nothing. 

All the right words were said.  The President lectured the banking leaders that it was their responsibility to give back to the American taxpayers  who bailed them out of the problems the banks themselves caused back when they were lending money like drunken sailors and creating phony and creaky investment instruments that brought the American economy to the brink of another great depression.  

The bankers left the oval office after having their tea and cookies and proceeded to continue not lending, to hoard cash, and to help build up those liquid reserves by nickel and diming their poor and increasingly jobless customers with invented fees and skyrocketing overdraft charges.

It’s hard to overstate the importance of banks in our current economic situation.  They lend money to small businesses who hire about 60% of the American work force…and they are not writing loans.   The housing market has now entered its second recession because homebuyers with good credit and sterling backgrounds are being turned down by banks.  So-called lending institutions have gone from predatory practices and inflating people’s financial assets and salaries to denying loans to families with solid credit scores and legitimate stability.

It’s not all banks.  Major non-financial corporations are stashing money under the mattress too.  They are not investing in new tools or products or hiring people.  And if you’ve checked out interest rates lately—they’re practically at zero.  Corporations are not exactly getting a good return on all the cash they’re hoarding these days.  It’s a stupid strategy.

The time to start lending and investing and hiring is NOW.  There is no greater bully pulpit in the world than the oval office and it’s high time the President exercised leadership and used some of that vaunted soaring oratory that got him elected in the first place to charm, cajole and otherwise inspire America’s business leaders into doing what’s right for their country, and in the end, what’s good for their own bottom lines.