The fiscal crisis in the United States is near, and it won’t be pretty

By LUIS MIRANDA | THE REAL AGENDA | MARCH 5, 2013

When one hears talks about the collapse of the dollar, it is hard to picture how a currency that is the base of all global transactions can simply disappear. An important point to understand is that such a collapse does not occur at once. It takes a while to happen because that is how it has been arranged. What most people are clueless about is that, not only is the death of the dollar possible, but that it has already started.

Since the dollar became the world’s currency by design, the American currency has lost a great deal of value. According to the U.S. Bureau of Labor and Statistics, one dollar today is worth only about 5% of what the green back was worth back in 1913. More recent signs of the loss of relevance the dollar has had in the global economy is the fact that major commercial power houses –American commercial partners and foes– have officially adopted new ways to conduct commercial transactions. For example, China and Russia are now using their own currencies to deal with the purchase and sale of products. Another case is that of India and Japan. They have also resourced to their own currencies to carry out trade.

The dollar has not only lost value, but also credibility. The origin of the lack of trust on what once was the base currency on which every single product and service was priced –including gold– is the United States’ thirst for debt as a ‘development’ model. Today more than ever before, the American government depends on the issuance of debt as a way to keep up with its spending. For that reason, the country’s central bank, the Federal Reserve, has come up with all kinds of circus moves to slow down an outcome that seems imminent: the complete collapse of the U.S. dollar currency.

The influence of the Fed in the way the U.S. manages its debt to GDP ratio stems from the country’s inability to make payments on the cash it has borrowed from the Fed itself, as well as China and other foreign investors who own much of the American debt. The path chosen by the Fed to temporarily deal with the American inability to make payments on its debt –which continues to grow out of control with every passing day– is to make large purchases of government bonds and to use quantitative easing –the pumping of unlimited amounts of electronic money– in an attempt to make everyone feel good about the state of the economy.

The Fed’s intention is to make clear to the world that the U.S. has meaningful ways to prevent a default, because since all important transactions are carried out in dollars and the dollar is the world’s currency, the private central bank can issue fake money for as long as it wants. The obvious consequence of indefinitely pumping cash into the economy is hyperinflation, which has not happened because banks were ordered not to put the money they were given out into the market in the form of loans.

It seems that the Fed has everything figured out and that the collapse of the dollar will not come as soon as some economists have predicted, but the reality is very different. According to a study conducted by four prominent economists, it is almost crunch time for the Fed and the U.S. government. Right now, the least of the problems for the central bank and the American government is not lack of credibility, but a strong change of a fiscal crisis. The report was prepared by David Greenlaw, Managing Director and Chief U.S. Fixed Income Economist at Morgan Stanley; James D. Hamilton, Professor of Economics at University of California at San Diego and Research Associate of the National Bureau of Economic Research; Peter Hooper, Managing Director and Chief Economist, Deutsche Bank Securities Inc; and Frederic S. Mishkin, Alfred Lerner Professor of Banking and Financial Institutions, a Graduate of the School of Business at Columbia University and former Chairman of the Federal Reserve Bank.

What these four men found, is that the actions of the Federal Reserve caused massive inflation to a level where the dollar’s purchasing power has gone down in free fall . As the very same Federal Reserve policy books say, the goal is to devalue the currency by at least another 30 percent. The 89-page report states that reductions in fiscal revenues and excessive increase in government spending, the close relationship between sovereign debt and the levels of interests to be paid on the debt, a significant relation between debt loans and borrowing costs and the direct effects of the fiscal crises on monetary policy have been combined to render a single outcome: massive losses for countries and institutions such as the U.S. Federal Reserve that will exceed available capital.

What this means is that, if things continue business as usual, even the Fed will become unable to sustain the current fiscal crisis. According to the report, the Fed may enter unknown territory where the amount of debt created will exceed its capital holdings. What will happen when the Fed gets to its limit and can no longer maintain the current debt-based system? According to the authors, the more a country’s debt is held by foreigners the greater the political incentives for the government to default on that debt. This is what has been seen in developing countries. The day of reckoning for the Fed may come as early as 2016. If better fiscal and monetary policies are adopted, the disaster could be put off until 2018.

It is then necessary to remember who are the United States’ investors. As of December of 2012, the Federal Reserve System, which is a branch of the international banking cartel came up as first. In second place is China, with $1202.9 billion. After China, other countries like Japan, Brazil, Switzerland and Russia appear in third, fourth and fifth places. With the U.S. debt reaching and passing 100% of its GDP and the government borrowing and printing money as if it were going out of fashion, the only possible outcome is what we have seen in modern cases of fiscal irresponsibility.

Countries get in debt up to their eye balls to fulfill the promises made at home during by irresponsible politicians during political campaigns. Since the government does not have any money to actually pay for the expenses it creates, it is only ‘normal’ to get in debt to be able to meet demands for more social programs and to pay interests on old debt. But since the governments do not borrow locally, they subject their country, (i.e. the people) to having to work all their lives to make payments on the debt generated on the debt it has gotten into. The ability of a government to make debt payments is finite. Cases in point Argentina in 199o, Greece in 2008 to 2012, Portugal and Spain in 2013 and the looming fiscal crisis the United States will have to face in the near future.

The supposed programs to help nations pay their debt is nothing more than an attempt to slow the collapse of the global economy and the that assures foreign debt holders they will have enough time to loot the countries for all they have gotten. That is the ultimate form of payment used by the international banking cartel uses to recover their so-called investments. Different from Argentina, Greece, Portugal and Spain, it is hard to see how the Americans will allow the bankers to suck every drop of blood for not paying its debt, which is why negotiations have been held to find the least painful way to phase the dollar out. Although the bankers want every single penny back, they prefer to get it in the most peaceful way possible as supposed to having to face street protests as it has happened in Egypt, Libya, Syria, Argentina, Spain and Portugal.

In conclusion, the current system of debt creation as the base for development has reached the end of its life cycle. The consequences to come should the United States continue to print or issue fake money to pay its debt instead of cutting down spending and making big international corporations liable for evading the payment of corporate taxes, will make it impossible for the U.S. government to pay its debt and for the Fed to issue fake money to sustain the current system. The only reason the U.S. has not collapsed as a debtor nation is due to the demand for U.S. Treasuries at home and abroad, which has been maintained due to the dollar’s status as the world currency. That status however, is a subjective and ephimerous concept. The moment more nations decide to trade with their own currencies, or to set up sound monetary systems such as the one Muammar Gaddafi intended to create in Libya –the gold dinar–, the more credibility and trust the dollar will lose. Lack of trust and the impossibility to meet fiscal obligations will end up destroying the dollar.

As the authors put it simply, high debt leads to higher interest rates and higher debt. The high levels of debt reach a tipping point –fiscal crisis– in which the interest rate shoots up. In the case of the U.S. it has many of the possible triggers of that shoot up in interest rates and the only thing that is holding them from going through the roof is an imaginary belief that the U.S. is still that powerful economic entity that it appeared to be many years ago.

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Debacle de Facebook poderia prejudicar ainda mais a Economia

Se parece uma fraude e cheira como uma fraude, é provavelmente uma fraude.

Zuckerberg e Thiel venderam milhões de ações

POR LUIS MIRANDA | THE REAL AGENDA | 23 MAIO 2012

Os investidores não parecem ter tomado nota da bolha technológica que explodiu anos atrás e decidiram confiar na crescente popularidade do Facebook e colocar seu dinheiro na fama da empresa. Apesar das advertências de especialistas em investimentos sobre os investimentos de risco em empresas de tecnologia, cujo verdadeiro valor não se reflete no número de pessoas que estão dispostas a dar a National Security Agency (NSA) a sua informação pessoal em troca de aparecer sofisticado, investidores gananciosos de  decidiram aceitar outro fraude que foi anunciado há algum tempo.

A oferta pública inicial de Facebook em si foi uma aposta muito arriscada para pessoas que se atreveram a tentar fazer dinheiro rápido aceitando a crescente da empresa no mundo. No entanto, algumas pessoas pulariam de um prédio alto sem pára-quedas, se tal ato estivesse embrulhado com palavras como “sofisticação”, “prometedor”, “moderno”, “bonito” e assim por diante. Depois de apenas três dias para vender ações, o valor dessas ações caiu 18 por cento, uma figura que poderia ter sido maior se as seguradoras não tivessem intervindo para manter a oferta à tona.

Embora as ações fictícias subiram em valor no início da venda, o seu valor caiu como um martelo para níveis muito menores a US $ 38. Para pequenos e médios investidores, isso já é um desastre, mas a situação poderia ficar ainda pior para aqueles que optem por manter a calma até que o preço se torne estável em seu valor real. A análise atual sobre o futuro da ação sugere que é provável que o preço caia para US $ 10 por ação. Isso é correto. Publicidade e o fenômeno cultural chamado Facebook não determina o valor real de suas ações. De acordo com uma análise feita pela Thomson Reuters StarMine, o preço correto deveria ser em torno de 9,59 dólares por ação. A maioria dos investidores devem estar se perguntando onde estava esta análise há uma semana.

Segundo a Reuters, a análise de preços múltipla indicam que as projeções de receita para a empresa irão chegar a um valor que reflete o crescimento no setor de tecnologia em geral. O futuro do Facebook mostra ganhos de cerca de 10,8 por cento, enquanto o preço pelo qual a empresa ofereceu suas ações mostram a inflação no valor de cerca de 24 por cento. Tal ves a queda no valor das ações é um fenômeno temporário? Não. Especialmente agora que alguns dos procedimentos para oferecer, vender e negociar ações do Facebook estão sob investigação e a prática pode passar por uma revisão cuidadosa por parte das autoridades.

Uma série de questões surgiram desde que o Facebook começou a oferecer ações a investidores, incluindo que Morgan Stanley cortou as suas previsões de receita, a venda maciça de ações de Facebook, a perda de 18 por cento em valor, um processo legal por um investidor depois que ele descobriu a fraude, informações privilegiadas dadas a investidores e assim por diante. No total, a venda de ações do Facebook se tornou em uma das mais rápidas transferências de dinheiro no passado recente, cerca de US $ 40 bilhões. “As acoes do Facebook estão muito altas. E como comprar alguma coisa que vale US$ 1 por US$ 1,98, simplesmente não faz sentido a esse preço”, diz Eddy Elfenbein, editor de Crossing Wall Street. “Se nós só levar em conta modelos básicos de previsão, as ações devem ter um preço de US$ 17 a $ 20, e isso e com uma série de variáveis.”

Segundo a CNBC, a Financial Industry Regulatory Authority está analisando as alegações que sugerem que Morgan Stanley compartilhou informações privilegiadas com alguns investidores pouco antes do início da venda. Essa informação, disse que as notícias eram negativas sobre Facebook. As denúncias levaram ao secretário da Commonwealth of Massachusetts, William Galvin, a emitir uma intimação para Morgan Stanley sobre as discussões que tiveram lugar dentro da empresa e com investidores sobre as ações do Facebook. Após as alterações serem feitas no documento S-1 de Facebook, em seguida foi apresentado a investidores do Morgan Stanley, antes de torna-lo disponível para a imprensa.

O desafio legal foi apresentado por um residente de Maryland, que processou o Nasdaq OMX Grupo. Phillip Goldberg diz em sua ação que a empresa foi negligente ao vender as acoes de Facebook, que por sua vez causou prejuízos para os investidores como ele. Nos documentos, ele diz que os atrasos nas compras têm causado a perda de seu dinheiro. A má gestão, diz ele, ocorreu em 18 de maio, o dia que Nasdaq começou a vender ações da Facebook. Mais investidores decidiram vender suas ações recentemente adquiridas, após a  falha de Nasdaq que não permitiu a conclusão de inúmeras ordens de pessoas que queriam um pedaço da fortuna do Facebook. “Toda a história de FB é um fiasco”, disse Jon Najarian, de TradeMonster.com. “O Nasdaq tem sangue nas mãos pelo que os mercados fechados causaram por mais de duas horas.”

Mas a situação com a tentativa frustrada de vender ações do Facebook não está enraizada em problemas técnicos ou mal-entendidos, mas na impossibilidade de vender um produto por um valor tão pouco razoável. Aqueles que tentaram fazer um dinheirinho rápido pagaram o preço por sua ganância. No entanto, é improvável que grandes investidores percam dinheiro neste novo capítulo de loucura financeira. No entanto, os pequenos investidores que não têm informações privilegiadas sobre o valor real do Facebook ainda querem comprar ações. Isto faz-nos fazem pensar se as ações de bancos como Morgan Stanley foram além do que faria uma seguradora tradicional. A mesma pergunta poderia ser feita sobre outros assinantes do Facebook como Goldman Sachs. Existem outras perguntas sobre a fraude de Facebook, por exemplo, se houveram apostas contra as ações e quanto dinheiro foi feito nas apostas. Não seria a primeira vez.

Mas talvez o mais repugnante é o fato de que uma vez que a venda de acoes começou, Mark Zuckerberg e um diretor da empresa, Peter Thiel, venderam milhões de ações para cobrar a sua parte do bolo. Mesmo os chefes da empresa não tinham confiança nas ações. Conforme relatado por Market Watch, o presidente-executivo, Mark Zuckerberg, vendeu 30,2 milhões de ações e o diretor Peter Thiel vendeu 16,8 milhões de ações da empresa. Esta informação foi confirmada pelos documentos apresentados e publicados na terça-feira. O ganho bruto recolhidos pelo Zuckerberg foi de US $ 1,13 bilhões, enquanto Thiel ganhou US $ 633 milhões dólares.

Entretanto, nem Facebook, nem Morgan Stanley estão dispostos a falar sobre o escândalo conhecido como o IPO Facebook. Mas alguns analistas financeiros e escritores estão dispostos a prever um futuro sombrio dado o fracasso do Facebook. Paulo B. Farrell de Market Watch acredita que o Facebook poderia destruir o pouco que resta da economia. Farrell colocou a empresa de redes sociais no top 12 como um candidato para acabar com a economia. “O que está acontecendo? Facebook está em apuros. Agora a empresa é um alvo de escrutínio público. E os avisos estão apenas começando “, disse Farrell em um artigo no Market Watch.

Debacle de Facebook podría Erosionar más la Economía

Si suena como una estafa y huele a una estafa, es probable que sea una estafa.

Thiel Zuckerberg y vendió millones de acciones

POR LUIS MIRANDA | THE REAL AGENDA | 23 MAYO 2012

Los inversores no parecen haber tomado nota de la efímera burbuja technológica que explotó apenas unos años atrás y decidieron confiar en la creciente popularidad de Facebook para poner su dinero en el gigante azul. A pesar de las advertencias de expertos en inversiones acerca de inversiones de riesgo en empresas de alta tecnología cuyo valor real no se refleja en el número de personas que están dispuestos a dar a la Agencia de Seguridad Nacional (NSA) su información personal a cambio de parecer sofisticado, codiciosos pequeños, medianos y grandes inversionistas decidieron aceptar otra estafa que fue anunciado hace tiempo.

La oferta pública inicial de Facebook en sí misma era una apuesta muy arriesgada para las personas que se atrevieron a intentar ganar dinero rápido de la creciente aceptación de la compañía en todo el mundo. Sin embargo, hay quienes saltarían de un edificio alto sin paracaídas, si tal acto viniera envuelto con palabras como “sofisticación”, “prometedor”, “moderno”, “bonito” y así sucesivamente. Después de sólo tres días de venta de acciones, el valor de dichas acciones cayó un 18 por ciento, una cifra que podría haber sido mayor si los aseguradores no hubieran intervenido para mantener la oferta a flote.

Aunque las ficticia acciones subieron en valor al principio de la negociación, su valor cayó como un martillo llegando a niveles inferiores al precio de apertura de $ 38. Para los inversionistas pequeños y medianos, esto ya es un desastre, pero la situación podría empeorar aún más para aquellos que decidan mantener la calma hasta que el precio se estabilice en su valor real. El análisis actual sobre el futuro de las acciones sugiere que es probable que el precio caiga a $ 10 por acción. Eso es correcto. La publicidad y el fenómeno cultural masivo que Facebook creó desde su creación no determina el valor real de sus acciones. Según un análisis realizado por Thomson Reuters StarMine, el precio correcto debe estar alrededor de 9,59 dólares por acción. La mayoría de los inversionistas deben estar preguntándose ¿dónde estaba este análisis hace una semana?

Según Reuters, el análisis de precios múltiples indican que las proyecciones de ganancias para la compañía alcanzará una cantidad que refleja el crecimiento del sector tecnológico en general. El futuro de Facebook muestra ganancias de alrededor de 10,8 por ciento, mientras que el precio al que la empresa ofreció sus acciones muestra una inflación en el valor de alrededor de 24 por ciento. ¿Talves la caída en el valor de las acciones es un fenómeno temporal? No. Sobre todo ahora que algunos de los procedimientos para ofrecer, vender y negociar acciones de Facebook se encuentran bajo investigación y las prácticas pueden pasar por una cuidadosa revisión por las autoridades.

Una serie de cuestiones surgieron desde que Facebook empezó a ofrecer acciones a los inversionistas, entre ellas, el corte de Morgan Stanley en sus previsiones de ingresos, la venta masiva de acciones de Facebook, la pérdida de 18 por ciento en su valor, una demanda presentada por un inversionista después de que él descubrió el fraude, las revisiones iniciadas por los reguladores financieros y así sucesivamente. En total, la operación de venta de acciones de Facebook se volvió una de las más rápidas transferencias de dinero en el pasado cercano, alrededor de $ 40 mil millones. “Facebook ahora va por mucho más de lo que vale, es como comprar una cosa que vale $ 1 por $ 1.98, simplemente no tiene sentido a este precio”, dice Eddy Elfenbein, editor de la Travesía de Wall Street. “Si sólo se toman en cuenta modelos de previsiones básicas, las acciones deben tener un precio de $ 17 a $ 20 dólares, y eso es con una gran cantidad de variables”.

Según la CNBC, el Financial Industry Regulatory Authority está revisando las alegaciones que sugieren que Morgan Stanley compartió información privilegiada con sus inversionistas justo antes del comienzo de la venta. Esa información, las acusaciones dicen, eran noticias negativas sobre Facebook. Las quejas llevaron al Secretário de la Commonwealth de Massachusetts, William Galvin, a emitir una citación judicial a Morgan Stanley sobre las discusiones que sucedieron dentro de la empresa con los inversionistas con respecto a las acciones de Facebook. Después se hicieron cambios en los documentos S-1 de Facebook, y luego se presentó a los inversionistas de Morgan Stanley antes de ponerlo a disposición de la prensa.

La demanda fue presentada por un residente de Maryland que demandó al Nasdaq OMX Group. Phillip Goldberg dice en su demanda colectiva que la empresa fue negligente al manipular la salida a la bolsa de Facebook, que a su vez causó pérdidas a los inversionistas como él. En los documentos él dice que los retrasos en las compras han causado la pérdida de su dinero. El mal manejo, dice, se produjo el 18 de mayo, el día que comenzó la venta de acciones de Facebook. Más inversionistas decidieron vender sus acciones recién adquiridas después de un fallo de Nasdaq no permitió que se completaran numerosas órdenes de personas que querían un pedazo de la fortuna de Facebook. “Toda la historia de FB es un fiasco”, dijo Jon Najarian, de TradeMonster.com. “El Nasdaq tiene sangre en sus manos de los mercados cerrados que ellos causaron por más de dos horas.”

Pero la situación con el intento fallido de Facebook de vender sus acciones no tiene sus raíces en problemas técnicos o malentendidos, pero en la imposibilidad conocida de la venta de un producto a un valor tan poco razonable. Aquellos que trataron de hacer un dólar rápidamente han pagado el precio por su codicia. Sin embargo, es poco probable que los grandes inversionistas pierdan dinero en este nuevo capítulo de locura financiera. Sin embargo, los inversionistas menores que no tienen información privilegiada sobre el valor real de Facebook continúan comprando acciones. Este hecho hace que nos preguntemos si las acciones de bancos como Morgan Stanley fue más allá de ser un asegurador tradicional. La misma pregunta se podría hacer acerca de otros suscriptores de Facebook como Goldman Sachs. ¿Cuánto fue la publicidad una herramienta para valorar las acciones? ¿Cómo lo hicieron? Hay otras precauciones a la debacle de Facebook, por ejemplo si había apuestas en contra de las acciones y cuánto dinero se hizo en las apuestas? No sería la primera vez.

Pero quizás lo más repugnante es el hecho de que, dado que después de la oferta inicial de acciones de Facebook, Mark Zuckerberg y uno de los directores de la compañía, Peter Thiel han vendido millones de acciones para cobrar su parte del pastel. Ni siquiera los jefes de la compañía tuvieron confianza en las acciones. Según lo informado por Market Watch, el presidente ejecutivo, Mark Zuckerberg, ha vendido 30,2 millones de acciones y el director Peter Thiel ha vendido 16,8 millones de acciones de la compañía de redes sociales. Esta información fue confirmada por los documentos presentados y publicados a última hora el martes. La ganancia bruta recogida por Zuckerberg suma a $ 1,13 mil millones, mientras que Thiel ganó $ 633 millones.

Mientras tanto, ni Facebook, ni Morgan Stanley están dispuestos a hablar sobre el escándalo conocido como la oferta pública inicial de Facebook. Pero algunos analistas y escritores financieros están dispuestos a predecir un futuro calamitoso dada la debacle de Facebook. Paul B. Farrell, de Market Watch cree que Facebook podría destruir lo poco que queda de la economía. Farrell ha puesto a la compañía de redes sociales en su top 12 como candidata a hundir la economía en una crisis más profunda. “¿Qué está pasando? Facebook está en problemas, eso es lo que está pasando. Ahora esta situación está en la mira de escrutinio público. Y las advertencias están recién comenzando “, dijo Farrel en un artículo publicado en Market Watch.

Facebook Initial Offering Debacle Could Further Erode Economy

If it sounds like a scam and smells like a scam, it is probably a scam.

Zuckerberg and Thiel sold off millions of shares

By LUIS MIRANDA | THE REAL AGENDA | MAY 23, 2012

Investors don’t seem to have taken note of the dot-com bubble that bursted just a few years ago and decided to trust Facebook’s growing popularity to put their money on the blue tech giant. Despite the warnings issued by investment experts about unwarranted tech companies whose real value is not reflected by how many people are willing to give the NSA their personal information in exchange for trendiness, greedy small, mid-size and large investors decided to put up with another scam that was announced well ahead of its time.

Facebook’s initial public offering in itself was a very risky bet for people who dared to make a quick buck out of the company’s growing acceptance around the world. However, there are those who would jump from a tall building without a parachute if such an act comes wrapped around with the words cool, promising, trendy, nice, future and so on. After only three days of trading, Facebook stock dropped 18 percent; a number that could have been larger if its underwriters hadn’t intervened to keep the adventurous offering afloat.

Although the fictitious stock gained big time early in the trading, its value dropped like a hammer hitting levels inferior to the opening price of $38. For most mid and low level investors this is already a disaster, but the situation could get even worse for those who decide to keep cool until the price stabilizes to its actual value. Current analysis of the future of the stock suggests that the price is likely to plummet to as little as $10 per share. That is right. The public hype together with the massive cultural phenomenon that Facebook turned into since its creation does not determine the actual value of its stock. According to an analysis conducted by Thomson Reuters’ StarMine, the correct price should be around $9.59 per share. Most investors must be asking themselves where was this analysis a week ago?

According to Reuters, multiple price analysis suggest that earnings projections for the company will reach an amount that reflects the growth of the technology sector in general. Facebook’s future shows gains of about 10.8 percent, whereas the price at which its stock was offered shows an inflation in value of about 24 percent. Would the abrupt fall in value be a temporary occurrence perhaps? Not likely. Especially now that some of the procedures to offer, sell and trade Facebook’s stock are under questioning and the practices may go under careful review by authorities.

A number of issues popped out since Facebook began offering stock to investors; among them, Morgan Stanley’s cut in its revenue forecasts, Facebook’s stock sell off, the loss of 18 percent in its value, a lawsuit filed by an investor after he smelled a rat, reviews begun by financial regulators and so on. All in all, Facebook’s IPO operation turned one of the fastest transfers of money in the near past; about $40 billion. “Facebook right now is going for far more than what it’s worth, it’s like buying $1 for $1.98, it just doesn’t make sense at this price,” said Eddy Elfenbein, editor at Crossing Wall Street. “Just from basic modeling the stock should be around $17 to $20 dollars, and that is with a lot of variables.”

According to CNBC, the Financial Industry Regulatory Authority is now reviewing allegations suggesting that Morgan Stanley shared information with insiders right before the IPO began. That information, the allegations say, was negative news. The complaints prompted Massachusetts Secretary of Commonwealth, William Galvin to issue a subpoena to Morgan Stanley over the discussions the company had with investors regarding Facebook’s stock offering. After changes were made to Facebook’s S-1 filings, the revised report was then sent to Morgan Stanley’s investors before making it available to the press.

The lawsuit mentioned above was filed by a Maryland resident who sued the Nasdaq OMX Group. Phillip Goldberg says in his class-action lawsuit that the company was negligent when handling Facebook’s IPO, which in turn caused losses to investors like himself. In the documents he says that delays in the purchases caused the loss of his money. The mishandling, he says, occurred on May 18, the day Facebook began selling stock. More investors decided to sell their freshly acquired stocks after a supposed glitch prevented Nasdaq from completing numerous orders from people who wanted a piece of Facebook’s fortune. “The whole FB story is a fiasco,” said Jon Najarian, from TradeMonster.com. “The Nasdaq has blood on its hands from the locked markets they disseminated for over 2 hours.”

But the situation with Facebook’s failed attempt to sell its nonexistent value is not rooted on glitches or misunderstandings, but on the well-known impossibility of selling a product at such an unreasonable value. Those who sought to make a quick dollar have paid the price for their greed. However, it is unlikely that big investors lost money in this new chapter of financial insanity. But retail investors who did not have inside information on Facebook’s real value continued begging for shares. This fact makes anyone question whether the work of banks such as Morgan Stanley went beyond being a traditional underwriter. The same question could be asked about other Facebook underwriters such as Goldman Sachs. How much did they hype the value of the stock? How did they do it? There are other caveats to the Facebook debacle, for example whether there were any bets against the stock and how much money was made in those bets? It wouldn’t be the first time.

But perhaps more sickening is the fact that since Facebook’s initial stock offering, both Mark Zuckerberg and one of the company’s directors, Peter Thiel have sold millions of shares to collect their piece of the pie. Not even the heads of the company gave the stock a chance. As reported by Market Watch, “Chief Executive Mark Zuckerberg has sold 30.2 million shares and director Peter Thiel has sold 16.8 million shares of the social-networking company. This information was confirmed by securities filings published late on Tuesday. The gross amount collected by Zuckerberg adds up to $1.13 billion, while Thiel made $633 million.

In the meantime, neither Facebook not Morgan Stanley are willing to talk about the scandal known as Facebook’s initial public offering. But some analysts and financial writers are willing to adventure dire predictions given Facebook’s debacle. Paul B. Farrell from Market Watch believes that Facebook could destroy the little that is left of the economy. Farrell has put the social networking company in his top 12 as a candidate to sink the economy into a deeper crisis. “What’s going on? Facebook’s in trouble, that’s what. Now in the cross hairs of public scrutiny, everybody’s taking potshots. And the warnings are just beginning,” said Farrel in an article published on Market Watch.

Facebook’s Overvalued Stock Fiasco Uncovered

Although the slide on Facebook’s stock price was officially explained as a ‘glitch’, reality demonstrates that the company’s artificially high-valued position was due to the intervention of its underwriters.

BLOOMBERG | MAY 22, 2012

Criticism of the Facebook Inc. FB -10.99% stock deal grew as the shares dropped below their offering price in their first full day of trading Monday, wiping $11.5 billion off the social network’s market value.

The company, its investment bankers and the Nasdaq Stock Market came under fire for failing to ensure a smooth debut for one of the most anticipated deals in recent memory. Facebook shares, which opened Friday at $38 and managed to add just 23 cents during the day, fell 11% Monday to $34.03.

While investors agreed Facebook shares weren’t worth $38 apiece, they couldn’t find consensus on who deserved the most blame.

Monday’s selloff was attributed partly to investors who were allotted more Facebook shares than they expected and moved to pare their holdings, said people familiar with the matter. Retail investors usually are allocated up to 20% of the total shares allotted in an IPO, but in Facebook’s case, retail allocation was around 25%, the people said.

Facebook had increased the number of shares being offered at the last minute before the IPO. As a result, many retail investors weren’t hungry for more shares once trading began, according to the people.

Facebook’s offering, one of the biggest U.S. IPOs, was supposed to burnish the reputations of Morgan Stanley, MS -1.20% the deal’s lead banker, as an underwriter, and Nasdaq OMX Group Inc. NDAQ +3.59% as the listing exchange of choice for hot technology companies. But some investors said tactical missteps and technical problems left them uneasy about the deal even before trading began Friday morning.

They faulted Morgan Stanley for overloading the market with too many Facebook shares and took aim at Nasdaq for system glitches that prevented some investors from confirming their trades or trade cancellations, which some said cost them tens of thousands of dollars.

“The underwriters completely screwed this up,” said Michael Pachter, an analyst at Wedbush Securities. The offering “should have been half as big as it was, and it would have closed at $45.”

At $34, Facebook would have a price-to-earnings ratio, a measure of how expensive or cheap a stock is, of about 57 times projected earnings for the next 12 months, according to FactSet research. The ratio means a Facebook share is more than four times expensive as a share of Google Inc. GOOG +2.28%

“Facebook’s IPO priced at a level well-above where we foresaw compelling 12-month returns,” BTIG analyst Richard Greenfield said in a research note Monday. With revenue and earnings growth decelerating in 2012, “we find Facebook’s current valuation unappealing.”

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