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Facebook and Morgan Stanley's Sleeze Factor

May 23, 2012

The financial news is all abuzz about the debacle surrounding Facebook going public on the NASDAQ.

It was reported on Fox Business News that Morgan Stanley's big clients (institutions who buy in large amounts) were kept informed on the latest information about Facebook stock that the average investor had no way of knowing. As a result, these big institutions knew that the price of the stock could not be sustained at its opening price of $38/share.

So those big institutions were advised to wait until the price of stock went down before they bought into the company. The prices then dropped below $31/share, wiping out all of the smaller investors, including a 5th grader who had invested $10,000 in Facebook shares (acc. to NY Times).


It seems that the NASDAQ was not ready for the Facebook debut, even though they had two months to prepare for it. Sam Lesser, the 5th grader, invested his money, but it went into limbo and remained tied up during the collapse of the share price. Like many others, they lost money because they were unable to sell when the price began to drop.

Between the NASDAQ and Morgan Stanley, the whole episode turned into a disaster for Facebook's investors. Morgan Stanley's financial advisors were able to advise their big clients and help them avoid losing money. But the little guys once again had no such help.

Unfortunately, this sleeze factor is not illegal unless such advice is actually written down as an email or memo. Verbal advice over the telephone is legal. So it is doubtful if Morgan Stanley can be prosecuted for it, unless the investigators find something else that they did wrong.

The small, individual investors just want a level playing field, but this is getting harder and harder to find. It is like betting against the casino. There may be a few winners, but most end up as losers. For this reason, there are fewer and fewer individuals buying stock these days.

It is getting to the place where one does not really need to know the status of a company to buy stock. All one really needs to know is (1) at what low point will the government's Plunge Protection Team drive up the markets, and (2) how will the big institutions react to the government manipulated figures, such as the unemployment rate, and (3) in the case of gold and silver, will JP Morgan be able to continue manipulating the market with a glut of paper sales of metal they do not really have.

This information is far more valuable than the normal market trends. The problem is that the average individual has little way of obtaining such inside information. For this reason, many are now advocating that people stay out of the manipulated system. For instance, rather than buy silver futures, one should just buy silver itself. Consider it a long-term investment and don't worry about the daily ups and downs of the market. Remember that price only matters when you buy and sell. In between those times, the price does not affect you.

New Risk Factors for Money in the Bank

Those who bought silver ten years ago were able to get it at $5.00/ounce or less. Today it is at the low low price of $27. Those who kept their money in the bank ten years ago made a few percentage points of interest, which was lower than the inflation rate, so they lost a little money every year, even if their dollar amount increased a bit.

Money in the bank is becoming more and more risky as time passes and as the Babylonian financial system  continues to crumble. In Greece, there are bank runs, because one day they may wake up and find that their bank accounts, which had been denominated in euros, are suddenly denominated in drachmas one-to-one. And then they will watch the drachma fall in value, essentially wiping out most of their savings.

Now Spain is starting to experience such bank runs.


Fewer and fewer people hold out hope for Greece these days. Spain, Italy, and Portugal are also on the Uneasy List. It always takes a while for large trees to fall, even after they have been chopped down. But once they start to fall, it may be wise to get out of the way and not wait until the last minute.

Iceland's Peaceful Revolution

In 2008 Iceland was bankrupt. An austerity program was imposed upon them by their banker-owned government officials. Parliament agreed to pay the debts at the rate of 3,500 million euros per month for 15 years.

In 2010 a referendum was held, and 93% of the people voted NOT to repay the debt. Instead, the new government began an investigation.

"Many high level executives and bankers are arrested. Interpol dictates an order to force all implicated parties to leave Iceland."


Then they took a new look at their constitution and decided to make changes, based upon the Magna Charta. Essentially, they have declared for themselves a biblical Jubilee--perhaps not a complete Jubilee, but at least a Jubilee in progress.

No wonder Iceland's news is being ignored by the mainstream press. It makes me wonder, though, how many Greeks know what has happened in Iceland. I suspect that many of them are demanding a similar outcome from their own government. If that happens, then the Spaniards will want the same, and the Italians as well.

Such a Jubilee cycle will cause many disruptions and some hardships as nations transition from one economic system to another. But in my view, it is not only prophetically inevitable, but it is also well worth it in the long run.

Even so, a little preparation never hurts.

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Category: News Commentary

Dr. Stephen Jones

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