Is anyone else having this facebook issue?

Can anyone please explain the Facebook IPO issue in layman's terms?

• Answer:

  Facebook (Zuckerberg) went to Morgan Stanley to underwrite the IPO. That emans that Morgan Stanley is responsible for issuing lots of shares in Facebook to the public along with some other responsibilities. Maybe one of Morgan Stanley's responsibilities was to ensure that the IPO was priced correctly. Unlike virtually any other IPO in hostory, FB appealed to lots of very junior investors - many people with almost no stock investing experience. There were lots of people on YA downright angry that they were being cheated because they couldn't buy FB at $38 at the IPO price. The IPO price was very high on the basis of Facebook's earnings. According to the price at which it was offered, to buy Facebook earnings you had to pay $100 for $1 worth of earnings. That is higher than almost all large companies and you would only do that for a company like FB if you thought there was lots of growth in the future. That measn Morgan Stanley was essentially selling the idea that FB was a growth story that justified the very high price. There were many people (like me) who told people that this was ridiculous and you shouldn't buy this stock. Unfortunately, Morgan Stanley was telling people they should. Why people listen to bullish sellers is not known to me, but lots of people do. Sice the IPO two uncomfortable facts have come out: a) Other underwriters felt the price was too high and urged Morgan Stanley to lower it. Morgan Stanley was apparently very imperious about such discussions and nearly ignored them. b) Morgan Stanley revised their earnings estimates downwards during the marketing phase of the IPO but didn't make this very public (no duh...they're sellers). That puts the growth story in serious question. So lots of very unsophisticated buyers bought on the opening day and they have been smacked. They are blaming Morgan Stanley (which is pretty stupid as they should blame themselves). In the end this is going nowhere because places like Citadel hedge fund are stepping in and complaining about how they got cheated. America is just not going to get too sympathetic about the terrible losses endured by Ken Griffen who made $600M in personal income last year...