The story of HFT and arrogance. It's also retail investors getting screwed, but speculators always win. But the winner's game can never be taxed because....ugh..they're winners? They create phantom money and won't skim off a little for the system that allows phantom money.
Occupy Silicon Valley?
Some in Silicon Valley are attempting to tap into the anti-bank sentiment stoked by Occupy Wall Street to suggest that the IPO was a victory for entrepreneurs. The basis of this argument is that by pricing the IPO at the higher end of its expected trading range, more money ended up in the hands of the company and less in the hands of IPO speculators. Purveyors of this argument recall the dot-com boom in the late 1990s when many technology companies went public at, for example, $30 a share only to see the stock price shoot up in the first few days due to a near hysterical hunger for shares.
In retrospect, the dot-com period should be seen as an early stage of a massive bubble of “fictitious capital” building up in the American economy of. Despite warnings of what Yale economist Robert Shiller, following former Federal Reserve Bank chairman Alan Greenspan, called “irrational exuberance,” money flowed into the American economy from around the globe. Low interest rates put in place by the Federal Reserve enabled consumers to borrow and spend and investors to borrow and invest. Too much money flooded into too few good investment projects. The dot-com bubble burst only to see capital migrate to the housing market and its associated derivative instruments, such as credit default swaps and synthetic CDOs, which, in turn, magnified that market and the wider impact of its subsequent collapse.
Now, as we struggle to recover from the disintegration of the housing market, a new bubble has appeared in the social networking and broader high-tech sector. Hopes have been stoked that social networking can trigger a broader shift in investing and job creation. Its apparent success even led President Obama, who raises significant campaign funds from Silicon Valley, to sign the JOBS (Jumpstart Our Business Startups) Act—a law drafted and lobbied for by venture capital and the tech sector—which dramatically weakens protective features of federal securities law that have been in place for many decades. The Facebook IPO was seen as a potential savior for the cash-starved California state government, which hopes to cash in on taxes collected from newly minted Facebook millionaires and billionaires. A wave of follow-on IPOs by other Valley social networking companies was widely expected to follow a successful Facebook IPO.
Valley entrepreneurs were said to be smarter about the wily practices of Wall Street than they were in the dot-com days. Thus, Facebook should actually be congratulated for pricing their IPO high enough that there was no early “pop” in the stock price, and most of the money raised went to the company instead of to “Wall Street speculators.” In theory, that means more money can be used to create jobs, build these new businesses, and apply their allegedly magical technical features to creating new efficiencies for the entire economy.
The only problem with this argument is that this is not what happened.