The Facebook initial public offering fiasco is just the latest in a string of events that have seriously damaged the credibility of U.S. equity markets.
The exodus of retail customers from our stock markets is the most obvious and dangerous indication of this loss of credibility. Too many things have happened in recent years that cast doubt on the integrity of our markets. That’s bad news for long-term investors. It’s bad news for growing businesses that need access to financial markets to raise capital. And it is especially bad news for a country that owes much of it economic power to its reputation for honest and transparent markets.
The Facebook IPO was a mess in many ways; we may know more when the inevitable investigations are completed. But there is no question that, just before the stock offering, the analysts for the firms responsible for the sale revised their earnings estimates for Facebook downward, and shared that information with favored customers. If you bought the stock based on earlier analyst forecasts, tough luck. What’s more, according to lawyers I talk to, the analysts did nothing that is now considered illegal.