After being paid $176 million in fees for IPOing Facebook to Faceberg in the stock market, Margin Stanley, the bankers that were paid handsomely for that con job are getting paid again, as double dipping is always allowed for the masters of the universe. You see, they made another cool $100 million in a matter of months for shorting Facebook stock, but they call it “price stabilization”, because saying that you’re shorting a stock in this situation makes you look like a complete asshat.
What’s great about price stabilization is that it allows you to take a short position without taking the risk of being a short seller. The Business Insider explains:
“shorting” stocks generally entails risk: If you short a stock that goes up, you lose money. And bankers don’t like to take risks when they can coin money without taking risks. So this particular cash-printing tool enables Wall Street to short the stocks without taking the risk that the price will go up and they’ll get hosed.
“Price stabilization?” “Risk-free stock shorting”? How does all this work?
Through something called the “overallotment option.”
The “overallotment option,” also known as the “green shoe,” is a mechanism Wall Street banks use in most IPOs. This mechanism gives the banks the option to sell up to 15% more stock than is initially expected to be sold in the IPO. The stated goal of this option is to enable the bankers to more closely match supply with demand and, thus, reduce the volatility that might otherwise follow the IPO pricing. This option also allows the bank to buy stock in the after-market without taking undue risk–thus “supporting” the price of the stock.
In other words, when there appears to be “excess” demand for stock on the IPO, the lead underwriter has the ability to sell 15% more shares than it has already agreed to sell. In selling these shares, the bank takes a short position in the stock, by selling shares it doesn’t yet own. If the bank were doing this as a “naked short”–selling shares it didn’t have a right to buy later at a specific price–the bank would be taking huge risk: The stock might go up, forcing the bank to buy back stock to cover its short at a much higher price. But the “overallotment option” allows the bank to buy another 15% of shares from the company at the IPO price, thus allowing it to sell additional stock on the IPO without taking the risk that the stock might go up.
Essentially, the bank gets paid commissions for selling these additional shares, therefore, whether the price goes up or down, the banks want to exercise this overallotment option. When the price goes up, they have the option that will always be exercised to purchase extra shares at a locked in IPO price, offsetting short losses. However, if the price goes down, not only do the IPO commissions come, but the shorting of stock pulls in a tidy profit, which is then locked in when the firm buys back the stock (called covering) at a lower price.
So it’s win, win, win if you’re a banker. Sure, Margin Stanley got shat on once again and became infamous for earning its nickname considering the circumstances – I don’t think they have many clients left after tanking a bunch of them for selling them loads of Facebook stock pre-IPO, but banking is about scalping money and taking whatever you can from your prey, whether muppet, client, muppet client, citizen, or all non bankers/non controllers.
This leads the Business Insider to conclude that:
“It’s no mystery why, even given all the travails Wall Street has gone through in the past 5 years, the Wall Street firms are still coining money. And it’s no mystery why everyone still wants to be a banker.”
Obviously, there’s a breaking point, because it’s getting so ridiculous now that eventually, you’ll have thoughtful citizens cocking rifles at bankers and politicians in bespoke suits if this continual looting without any sort of rational or just response from regulators or law enforcement/authorities.
I encourage all of you to talk about the financial looting of our country and our society as it’s one of the easiest ways to wake people up. There needs to be a concerted movement from society to change this, because it’s obvious the politicians don’t want to help us, and prosecutors are lacking courage. Press the word.