Süddeutsche Zeitung, Germany
From Sorcerer to Speculator
By Hans-Jürgen Jakobs
Translated By Ron Argentati
23 May 2012
Edited by Gillian Palmer
Germany - Süddeutsche Zeitung - Original Article (German)
Facebook originally stood for a possible way out of the economic veil of tears, but the IPO quickly came to represent the destruction of capital that is in a class by itself. Shareholders are outraged and law suits are already pending. CEO Zuckerberg plundered a great hope.
The whole world loves a hero, but these days the world is replete with anti-heroes. They struggle with huge debts, looming national bankruptcies, trade deficits and currency upheavals. They head up Western corporations that must defend themselves from attack by Chinese firms and often have few answers to the problems posed by the climate catastrophe.
How gloriously the young, enterprising American entrepreneur who came up with a social networking idea while a student at Harvard started out. It was an idea that quickly attracted over 900 million users worldwide. A genius who was received by heads of state and appeared to have come up with a new era for the market economy that was fresh, free and digital.
Mark Zuckerberg and his company, Facebook, appeared to be a symbol for the great breakthrough out of the financial crisis and a way to escape the economic veil of tears. Attracting an attention level that is usually only accorded Hollywood stars, Zuckerberg went to the New York Stock Exchange last Friday and laid one of the biggest eggs ever laid in modern times. Within a few days, the value of his smoke-and-mirrors company had been decimated to the tune of some $19 billion. That's one-sixth its total value. That's capital destruction that belongs in a class by itself.
The investors are outraged and lawsuits have already been filed. The Securities and Exchange Commission and other regulators have begun investigations. Inconsistencies surrounding the third-largest initial public offering in history keep emerging: They suggest that Mark Zuckerberg is less a sorcerer than he is just a speculator. The hip entrepreneur, his company cronies and the banks backing them all profited because they played in accordance with the rules of pure greed. They hollowed out something that represented hope. That's bitter for the stock exchange system, for the United States and for the Internet community.
The “old” Facebook investors lost $16 billion in this scandalous stock market IPO, but the banks nevertheless raked in $160 million in fees. Apparently, right at the last minute prior to the great profit-taking action, the profit projections were lowered, something only insiders were made aware of. And because the hype was so great, the banks around Morgan Stanley increased the number of shares available to a total of 421 million. The opening price was set at a maximum of $38. A few investors were clandestinely given the right to sell their shares as early as 90 days after acquisition, instead of the usual 180 days. The belief in future growth was obviously weaker than the desire for quick profits.
Citizen hacker in a hoodie
No one could imagine such a debacle -- not even the many critics who did the math and concluded that Facebook could never be worth more than a hundred times its annual profits. Nothing helped: The chaos caused by placed and then immediately canceled orders led to serious software problems shortly after markets opened for business. Whoever jumped in at that time had to live with collapsing prices. All the housewives and hobby investors who hoped to cash in on the boom arrived too late. The cream had already been skimmed; the professionals had already been there.
The case is slightly different from that of the German media firm EM.TV, which happened 15 years ago during the “New Economy.” It started small before imaginations began to run wild. Those who held on to their stock during the first two years and then sold at the right time were able to buy homes in the countryside. That's not likely to happen so quickly with Facebook. No one knows whether sales will continue to show strong growth or drop off because Facebook users don't want to put up with the advertising spots sent to them on their cell phones. No one knows if perhaps Facebook, the market newcomer from Silicon Valley, might go the way of MySpace. That once much-loved platform has declined to the point where it now has hardly any fans.
The Facebook case confirms the worst side of financial capitalism. In a situation where global stock prices are under pressure, it becomes an example of organized greed. That brings the participating banks into disrepute — that includes J.P. Morgan, an institution that just lost at least $2 billion and perhaps as much as $5 billion through speculation on financial markets.
Zuckerberg's make-a-killing approach doesn't really sit well with a public tending toward anti-capitalism, anarchism and piracy -- a clientele that takes pleasure in debate and campaigning and advocates for unlimited freedom, for example in the area of copyright. Facebook wants to ensure a new order in this world, to promote personal networking. It wants to be a sort of poetry album for everyman.
Somewhere beyond the Zuckerberg blarney that says, "Facebook's mission is to give people the power to share and make the world more open and connected," the truth comes out: The boss is a gambler. He's concerned about making a killing. He's a citizen hacker wearing a hoodie who went to the bankers and then celebrated his stock market billions, as programmers are wont to do, with Red Bull and a DJ. His grip on investors' wallets isn't really very different from financial hacking. So Mark Zuckerberg is also a pirate, albeit an extremely rich one.
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