Friday, July 27, 2012

The Great American Swindle

Facebook is turning out to be the poster child for everything that is corrupt on Wall Street.  From fraudulent representation of financials to the fleecing of widows and orphans.  - Dave in Denver, May 22, 2012
After posting its first earnings report as a full-blown public company, Facebook stock is down over 14% from last night's close as I write this.  It hit a new low of $22.28 earlier.  From IPO ($38) to low, Facebook stock has lost 41.3% of its value in just 51 days of trading as a public company.   That represents a $33 billion dollar loss in wealth.  Given that the reported number in the Madoff Ponzi scheme is around $20 billion, this makes Facebook the largest swindle in U.S. history (next to the U.S. Government's $16 trillion Treasury debt swindle).

I'm actually stunned that the Facebook collapse has happened this quickly.  I expected the stock mania portion of the FB saga to last at least 6 months beyond FB's first earnings report.  Speaking of which, the spin-meisters on Wall St. and the media are lauding FB for "meeting revenue expectations."  Any idiot knew that this would be a no-brainer because FB's quarter was nearly 50% in the bag by the time the IPO occurred.  Having worked on public offerings for companies, I know that the underwriter and primary analysts covering the deal have access to the inside numbers.  Forecasting the revenue number was a no-brainer.

Where the "swindle" occurred was selling the "sizzle" of FB being the king of social networking and internet communication.  The dreamy possibilities are endless.  Just like at the height of the internet bubble.  It's a "new economy and new business model with limitless profits."  Well, the truth is that Facebook's operating margin plunged 10% from the same quarter a year ago and it generated negative $171 million in free cash flow.  This means that it was spending more to generate each dollar revenue than each of those dollars was able generate in cash profit.  This is essentially how a Ponzi scheme operates.  Make no doubt about it, Zuckerberg and Morgan Stanley knew that Facebook would report ugly growth and profit margin numbers when they were hyping up the IPO.  I know this because I've worked on securities offerings in the past.

What makes this most appalling is that it became apparent to the more "sophisticated" investors who were looking at the IPO during the road-show stage that the market value assumed using the likely IPO price was far higher than any true measure of value that could be assigned to FB.  Many of these institutional investors were given a better look at the real numbers behind the IPO marketing spin and walked away.  That left mostly the smaller investors vulnerable to the "share-stuff" done by Morgan Stanley right before the deal priced (Morgan Stanley retail customers were told they could only get 500 shares, only to end up with as much as 5,000 shares right before pricing).

Let's see, Long Term Capital, Enron, Refco, Amaranth, Countrywide, Washington Mutual, Lehman, Wachovia, MF Global, JP Morgan, Madoff, now Facebook - where and when will this end?  Probably not until the country collapses economically then politically. The most appalling aspect in watching this America abortion unfold is that the guy in the Oval Office who was elected on the promise to clean all of this up has turned out to be the guy who has looked the other way while the nation's wealth is being swindled away by Wall Street banks, corporate operators and politicians.

When the history books are written on this era of our country, they will not be kind to Obama.  He was ushered in on the euphoria of being the first African-American to be elected President.  He will be remembered ignominiously by future generations and historians as the ultimate promoter of the great American swindle.


  1. History will not be kind to Obama...

    No shit. I continually beat myself up for being so naive as to be sucked up into his, "hope and change" hype... live and learn, right Dave? 1Kg Lunar Dragon.

    1. Please do not take personal offense to my comments but as an African-American, I place the blame for us being stuck with Obama squarely on the shoulder of white voters. How can I blame white folks when 95% of the black voters pulled the lever for him? I place the blame there because even if 100% of the blacks had voted for him, that would not have been enough to swing it for him.

      I believe that a large number of white voters supported him in an attempt to assuage white guilt and to have a part in an historic event. Those were not necessary bad reason on the face of it, but what I find troubling is that they were largely uninformed votes. This was a candidate who was virtually unknown and unheard of five years prior to the election. Yet, because he was ostensibly an ivy league graduate, you all were convinced that he was brilliant and were eager to give him the keys to the kingdom. I think even nominal discernment has disproved that.

      But that's now history. So I have created a slogan for you folks for the 2012 campaign. "You voted him in to prove you're not racist; now vote him out to prove you're not stupid"

    2. No offense taken. I agree with you completely. It was the not the high black voter turnout that swung the election. It was several dynamics: 1) A lot independents ended up voting for Obama because they couldn't stomach a McCain/Palin ticket 2) A lot of whites voted for Obama for the reason you listed 3) the college vote-turnout was much higher than usual because they anticipated based on some of Obama's statements that he would try to legalize weed.

      I love your 2012 campaign slogan there. I may use it as a quote to open a blog post next week.

  2. I got sucked in as well. Fortunately, I read a long, detailed article on him published by a British periodical - it had the kind of stuff in it that the media buried early on here, like the connection with that corrupt real estate operator in Chicago, the graft position his wife had at the U of Chicago Medical Center, etc. I ended up not voting at all because I wasn't going to vote for McCain.

    I even went to a late October campaign rally he had in Denver. I realized after reading that article and connecting the dots that he was a glorified snake-oil salesman and my original gut thinking not to trust any Chicago-machine politician was right on.

    The problem is, we all were starving to get rid of anything connected with Bush and Obama represented that, including his promises to undo a lot of the Bush damage. Obama has taken the Bush damage and made it worse.

    1. Dave, why don't you run for president? I guess you can be a better president than Obummer.

    2. LOL. Who would want that job? Anybody who wants is a political whore. Anybody who could do the job well could never get elected because they wouldn't prostitute themselves out to the highest bidders like Obama and most of his predecessors.

    3. dave, do you really think Romney is going to right the US? It's easy to say vote Obama out but the alternative is even more of a shill, IMO. Increase defense spending, rollback regs on financial institutions, cut taxes all across the board and all the while probably not cutting spending anywhere else? No thanks.

      the whole Gov needs to be congressional term limits and modest public funding for elections, with little to no outside $ allowed. Maybe officials would spend more than 50% of their time actually making decisions instead of fundraising and they'd be more willing to make tough choices.

    4. Agree. I'm not voting and I know several people who are not. Anyone who votes is participating in the continuation of the system as it is. Romney won't be any different that Obummer except that he might establish a Dept of Moral Values Enforcement or something like that.

      I advocate anarchy and revolution. It's the only way this has a chance of changing.

      I said 10 years ago the best thing that could happen is we build a big wall around Capitol Hill while all the thieves are there and we napalm it to the ground. Then move the capitol as far away from either coast as possible and rebuild the country starting with the Original Bill of Rights.

    5. Dave,

      The only real difference between the parties is how fast we move toward collapse. Democrats seem to want to get there faster, but it is getting to the point where events will be out of the control of either party. A benefit (the only one) of the republicans being in control is it might give us a little more time to prepare. I once thought the supreme court was a deciding issue, but after Kelo and Obamacare, even that doesn't matter.

      Great blog. It is one of the few I check daily.


    6. Romney and Obama remind me of, well... me, when I was a hormone driven teenage boy, fighting acne, ready to say anything, ready to sacrifice my dignity, all in the name of getting a girl to believe my 'campaign promises' and consent.

      This election cycle, my 16yr old daughter is giddy to vote for me. She will drive, we will enter together, I will give my John Hancock, flash my DL with my ridiculously handsome mugshot, and then, she gets to do her thing, have a ball, go to town, and knock herself out.

      Because neither candidate will reform the financial industry, dismantle the banking cartel, or grab its con men and grifters by the throat and squeeze until they blackout. Obama has proven it and Mitt isn't the guy either with his Top 5 contributors:

      GS $636k; JPM $503k; MS $476; BAC $466; CS $421

      Add Barclays to the top of that list. From The Guardian... "Executives at Barclays have donated over $1m to Romney's presidential campaign and will hand over more money on Thursday night (July 26) at an exclusive fundraising dinner in a secret Mayfair location, where tickets cost between $50,000 and $75,000." LINK

      Regardless of the next POTUS, we will be blessed with the Health Care 'tax', higher taxes in general, more debt, higher inflation, more unethical behavior, more lies, more incompetence, more bribery, continued war mongering, and a much more powerful Nation State all in the name of protecting Lady Liberty from the evils of the world.

      Can't wait until midterm elections. My son will be 14 or I could allow middle child, my daughter who happens to have Down Syndrome, will be 17. Hmmmm?

    7. Would you please link the British article?

    8. I wish I still had it to link. It was in Oct 2008. I can't even remember the name of the publication. But I remember I had researched the publisher of the magazine to make sure it wasn't some right-wing British fascist and it checked out okay.

    9. The article referenced a lot of stuff that we knew about was buried early on, like the fact that Obama bought his house in Chicago from a very corrupt real estate operator and got a gravy deal, etc.

  3. Dave, Thank you for your admission that you got sucked in as well. So did I. After the election a small group of friends gathered together for a victory celebration. We raised glasses to the great victory and as I did I thought to myself, "just watch. Everyone here will be tragically disappointed. I didn't share my feelings until a few weeks later and was looked at by a friend who'd been at the dinner like I was crazy. But my gut told me something that my head and eyes just couldn't see yet. This time I'm not voting for either clown. I'll write in Ron Paul or maybe Donald Duck.

    1. A lot of people got sucked in out pure desperate hunger to get rid of anything associated with Bush. A lot of people know they got sucked in.

      What amazes me is the number of people who know they got sucked in and yet still defend/support Obama. It goes to show you the extent to which most Americans have their head in the sand. They know know something is wrong, but they'd rather watch reality t.v. than take time to learn the facts and create a movement of real change and revolution.

    2. It's not a $33B loss. Technically speaking if you're valuing the whole company you're right but to compare it to Bernie is apples to oranges since they didnt IPO the whole thing.

      Also, anyone who bought the stock as a long term play was either willfully ignorant or just didnt care. I don't really feel sorry for people who lost $. It was the most hyped IPO ever. This wasn't rocket science and you didnt need much financial literacy to realize it was completely absurd. Hopefully any illegalities will come to light and there will be some lawsuits. The '33 act rules are pretty liberal when it comes to suing for misstatements and such during the IPO process.

      IMO, I don't really think this falls on Obama's head. The SEC isn't an assurance against losses or overhype. If anything illegal occurred they should obviously step up and investigate though.

    3. I think the real problem is the fact people never like to admit they are wrong. Consider the housing bubble for instance, there were housing bubble bloggers who were sounding the alarm all the while the know-it-alls refused to accept the idea their favorite investment could go down. In defense of their investment they turned to ridicule and angry responses rather than reasonable replies to the critics of housing. It was only after housing crashed did the know-it-alls admit housing could go down, but many still refused to admit they were wrong and chose to blame the bubble bloggers for the housing decline.
      Unlike most investors, the minority (the successful minority) never fall in love with their investments and are not afraid to sell when fundamentals change. The successful investors also know when to sell at a loss to limit their losses while the sheep hold their can't miss investment until it falls to zero.
      Investments, relationships, politics, add your favorite item, we all turn a blind eye when we need 20/20 vision.
      Hubris, thou art an enemy to us all.

  4. I am even more cynical than you. The history books, like the rest of our system, are a fraud and they will likely glorify Obama as previous tyrants were glorified by their state apparatus. I found Bush beyond disgusting, but didn't fall for the p.r. & marketing b.s. of brand "Hope and Change" (or McCain). Voting gives the masses the illusion of being able to select their future while the media and voting machine software controls the outcome after the PTB select the red and blue team finalists. It's all theater to select a new front-man for the controllers. A new Teleprompter-in-Chief.

  5. Hi Dave,

    Nice post, though I have to differ on this ''It goes to show you the extent to which most Americans have their head in the sand.''

    I think the population of the West in general is victim of the Stockholm syndrome, suffer under the big lie (and thus cant see it), subject to the massive propaganda, dumbing down and and and. Most likely a mix of it all. Untill 5 years ago, I believed (most) of what I now call bullshit. And that from a son whoes grandparents family from both sides suffered lots in the 2nd WW (especially the hunger winter of 1944-45)

    Still I was raised as a good statist (only 1 granddad a hater of the politicians and banks), since 2007 I did not trust the regular media and what I was thought at university anmymore (studied social and institutional economics, didnt finish studies though and never persued a career in it).

    The free flow of information over the internet made me see great work of anon ppl like u, and better, (wink, lol) really that is what gotten me on the right track. It was a tough ride. The way I thought how the world worked I had to throw over board and had to adapt a new one. This sums the stages I went through pretty well;
    1. Denial In this stage you dismiss anything that goes counter to conventional wisdom as crazy talk or conspiracy theory.
    2. Anger When you start to see that you were fooled, you react violently for being taken for a fool and want to lash out
    3. Bargaining- After you calm down, you reach out to anyone who will listen to tell them what is really going on.
    4. 4. Depression- Now that you have reached out to everyone and nothing seems to happen, depression sinks in
    5. Acceptance- At the point where you now become comfortable with the oncoming reality and make active, positive steps to prepare for it.

    But man, it was worth it to learn.

    ''What amazes me is the number of people who know they got sucked in and yet still defend/support Obama.''
    If I may be so bold, it doesnt suprise me a bit. Most know their position (job) is totally dependant on the status quo. TINA in short, bribing with them $3000obamathingies sure helps. You guys have Ron Paul hammering it home to the population. Here the libertarian party runs for the 2nd time. (1st time in 1992 if I remember well).

    If I have to state liberty, a well informed and well educated people on a slab of land free to persue their own happyness as long as they dont hurt others.
    I like to add to that, dont dominate all like the BIS and more and more UN.

    Had to ramble a bit... hope u dont mind....

    1. Could indeed be a mass case of Stockholm Syndrome. I think it's more along the lines of the Nietzsche Master/Slave theory in which 10% of humans want to lead and 90% would prefer to be told what to do.

  6. swindle you say? you are absolutely right... most of em got pulled into this trap !! what a shame

  7. With regards to the American election. I am not an American and unfortunately cannot influence that outcome.

    But instead of not going to vote due to a bad choice I would urge you please to rather go and spoil your vote. That definitely sends a stronger message that the government will not be ligit.

    I would also urge you to write about it and try and get everyone to do the same - unless of course a Ron Paul or another third party savior appears.

    Please spoil your vote rather than not voting!!!!

  8. Like Mark Twaine stated "If voting mattered we wouldn't be allowed to do it" The only way of voicing your displeasure with this two party cespool of corruption is to vote for any third party candidate on the ballot

  9. "The only way of voicing your displeasure with this two party cespool of corruption is to vote for any third party candidate on the ballot"
    How about- The only way of voicing your displeasure with this two party cespool of corruption is to buy physical gold and silver...