This Time Is Different

This Time Is Different

Benjamin Ross: The Facebook IPO – This Time Is Different

Almost like clockwork, the social media mania of 2012 follows the housing bubble of 2005, the dotcom boom of 2000, and countless earlier episodes of financial excess. The bubble always pops, but ever since the Dutch tulip mania ended in 1637, investors in the newest fad have assured themselves that ?this time is different.”

But as Facebook goes onto the stock market this week, accompanied by skyrocketing prices in any security that vaguely resembles it, something really does appear to be different. It’s not, to be sure, the all-too-foreseeable ending. Prices will eventually return to sanity, the promoters will walk away rich, and all that remains to be learned is who will pay the price.

What’s different this time is that everyone involved seems to understand the game. Brokers continue to tout future profits, but their forecasts give the impression of just going through the motions. Buyers buy because they have faith in Wall Street’s ability to manipulate prices. They readily admit that they are playing in a casino; they think they are betting on the house. As in so many con games, the suckers are convinced they’re being let in on the scam.

Exactly how things will play out, we do not know. Money managers may stuff the losses into workers’ pension funds, rich foreigners may take a hit, or perhaps the banks themselves will lose so much money that the taxpayers have to bail them out again. Still, when the inevitable comes to pass, it will be harder than before to justify–Wall Street’s excuse of ?capital formation? is wearing thin. The wealth of the 1 percent will be out in the open that much more.