Tuesday, May 8, 2012

Occupy Facebook

 "Devil or Angel I can't make up my mind"

Wing makers and diadem polishers are busy, glow sticks are being fueled as new members of the pantheon of Mammon are about to be welcomed into the fold. What's most difficult for me is my inability to be clear about their belief system. The same people whom we sanctify as good guys, known by their support for OWS, expanded democracy, and the redistribution of wealth, are this very minute checking their insider status, their stock allocations, and lock-up dates for their soon to be public shares of Facebook. Many new members of the soon to be fabulously wealthy are exploiting the very systems that they decried last MayDay. 

Those not lucky enough to be insiders are calling their brokers looking for shares, checking the institutions that they own in their 401s to see if they are going to get any shares, and planning to get the jump on the trading as soon as it starts. Warren Buffett isn't going to play. He can't place a value on the company but he knows that all the noise is creating a "sense of value" that has no intrinsic worth. ( "Bubbles" aren't revealed when they burst. Bubbles are the everyday nature of a stock market that makes prices on a multiple of  expectations of unpredictable future activity). He may also have noted that insiders are selling nearly half of the offering shares. It is usually a negative sign when insiders express so little faith in the future fortunes of their company that they want to rush to the doors to sell their shares. 

Many of the so called "good guy funds", for this post I took Calvert, an early and successful cluster of funds that markets that they invest in sustainable and moral corporations, if history is any guide (they own Google, Apple, and many other new media cos) will be at the trough buying from Morgan Stanley (lead underwriter). JPMorgan Chase & Co., Goldman Sachs Group Inc. (GS),Bank of America Corp., Barclays Plc (BARC) and Allen & Co. also will help with the IPO, Facebook said in the filing. 

The story of Sheryl Sandberg's migration from the Treasury Dept under President Clinton, who she worked for along the way before becoming COO of Facebook, is documented on Bloomberg here
So now, if you have clicked away, you know that Facebook is Wall-Street and that only the most naive believe that Facebook is in the social change business, here or abroad. The temporary exploitation of Facebook as a tool to organize a meet-up, should not be confused with the greater and longer lasting function of Facebook as a means to expand through their advertising sales, the ever increasing materialism of new markets. 

"Money for nothing, chicks for free"

As for the expansion of democracy, the implicit understanding that shareholders after all control the companies they invest in, is contradicted by Facebook  using a little known means to retain control: Zuckerberg adopted a dual-class structure in 2009. He has 10 votes for every other shareholder’s single ballot. 

The larger picture is just as morally confusing. What does it mean when we invest almost 100 billion dollars in an activity as vacuous as Facebook. Discussions of the policy of less or more government, investment in infrastructure or education, or the military for that matter, become meaningless against the backdrop of a culture that expresses its true sentiment, aspirations and dreams, by entering the casino and betting up the value of Facebook. Cuz that is what you are doing. Investors have become suckers in the largest ponzi scheme on earth. 

The shortest course in the mechanics of an IPO: An individual or group begins some form of activity that has economic value, or the potential of profit. They can organize that activity in a variety of forms. One could form a partnership, a co-op, a non-profit, or a closely held corporation. Facebook chose stock corporation. Lawyers develop documents which register the company formally, describe the activity, where it will function and the initial owners and board members of that company. Other docs spell out meetings and elections, formats etc. Stock is registered and distributed. Most is kept "on the shelf". In the case of Facebook there are 2.48 billion shares registered at a value of 6 cents a piece. (337.4 million are going to be sold through this IPO). When an insider is awarded shares in lieu of salary, or for a bonus, that 6 cents is their basis price. At some point, enough activity has taken place that someone initiates a conversation about taking the company public. That is selling shares either from the shelf, or from insiders to raise capital. That capital might be used to expand the company, liquidate debt, make acquisitions, or enrich insiders who decide to sell their shares. A set of sell side "bankers" goes through a process of due diligence and writes up the findings. The corporation and their bankers make judgements about how they might price these shares, and how they are going to word the "red herring" the offering document to the public. If you ever read a red herring you will note that they say nothing but the worst about the fortunes of said company. They are not allowed to hype without evidence. It is the wink in the process. The company goes on a road show attracting investors to the IPO and obtaining subscriptions, commitments to purchase x shares. On a date specific the company under the auspices of the SEC offers the shares. The initial shares are distributed and then trading moves to the markets where those less fortunate are allowed to buy and sell shares. There is often a pop created by either a perfectly legal agreement on the part of the bankers to commit to purchase shares in the after market, or a purposeful shortage of shares available determined by bankers guessing the demand, and then not satisfying it. Insiders whose shares are not part of the initial IPO are locked out of sales for 6 months. Their sales into the market after lockout are the first wave of dilution, that is selling more shares of a company into a market after a price per share is being determined on a trading platform. Remember those millions of shares that Facebook retained on the shelf. They too can and will be sold in "secondaries" to raise yet more money and dilute the shares further. 

It is getting so hard to maintain even the semblance of liberalism in the face of such temptation. Before you sell your soul, or wish that you had I think it is important to consider one small excerpt from Wendell Barry's Jefferson lecture: excerpt from Wendell Berry's 2012 Jefferson Lecture 

"That we live now in an economy that is not sustainable is not the fault only of a few mongers of power and heavy equipment. We all are implicated. We all, in the course of our daily economic life, consent to it, whether or not we approve of it. This is because of the increasing abstraction and unconsciousness of our connection to our economic sources in the land, the land-communities, and the land-use economies. In my region and within my memory, for example, human life has become less creaturely and more engineered, less familiar and more remote from local places, pleasures, and associations. Our knowledge, in short, has become increasingly statistical.
Statistical knowledge once was rare. It was a property of the minds of great rulers, conquerors, and generals, people who succeeded or failed by the manipulation of large quantities that remained, to them, unimagined because unimaginable: merely accountable quantities of land, treasure, people, soldiers, and workers. This is the sort of knowledge we now call “data” or “facts” or “information.” Or we call it “objective knowledge,” supposedly untainted by personal attachment, but nonetheless available for industrial and commercial exploitation. By means of such knowledge a category assumes dominion over its parts or members. With the coming of industrialism, the great industrialists, like kings and conquerors, become exploiters of statistical knowledge. And finally virtually all of us, in order to participate and survive in their system, have had to agree to their substitution of statistical knowledge for personal knowledge. Virtually all of us now share with the most powerful industrialists their remoteness from actual experience of the actual world. Like them, we participate in an absentee economy, which makes us effectively absent even from our own dwelling places."

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