House Votes For Weakened Insider Trading Bill

Watered Down STOCK Act Passes
First Posted: 02/ 9/2012

WASHINGTON -- A weakened version of the STOCK Act banning insider trading by members of Congress and the administration passed the House Thursday without curbs on "political intelligence" or new clean-government rules.

The legislation would make it clear that lawmakers and key staffers are bound by the insider trading laws that affect everyone. The House bill also adds a provision to bar lawmakers from participating in IPOs. The bill passed 417 to 2.

But the House bill cut a provision that was in the Senate version requiring people who collect and trade so-called political intelligence -- information from government that can move markets and stock prices -- to register just like lobbyists if they want to talk with covered officials in Congress and the executive branch so that the public knows who they are and what they're doing.

It also cut a provision that cracks down on officials guilty of taking actions on the job to benefit themselves.
Republican sponsors of those provisions in the Senate -- especially Sen. Chuck Grassley (R-Iowa) -- were highly critical of the changes, with Grassley calling them "astonishing and extremely disappointing."

House Majority Leader Eric Cantor (R-Va.) defended the revisions, saying his work on the legislation -- which was done in secret and ignored another version of the House bill that had nearly 300 co-sponsors -- strengthened the measure. He singled out the political intelligence provision.

"I think that is a provision that raises an awful lot of questions. I think there's a lot of discussion and debate about who and what would qualify and fall under the suggested language that came from the Senate," Cantor said, adding that political intelligence doesn't directly concern lawmakers since they are not the ones trading in the intelligence. "The political intelligence piece is outside of this body, and we're talking about us and the perception that has gathered around our conduct."

"It's incumbent upon each of us to start to restore the trust between the people and their elected representatives," Cantor asserted. "That is what the STOCK Act is all about."

But House Democrats, pointing to bipartisan disappointment in the Senate, took Cantor to task, even as they backed the bill in order to move it forward to a conference conference with the Senate, in which the differences could be worked out.

"It just raises a question to me as to if it is so important, and it certainly is, why we could not have worked in a more bipartisan fashion either to accept the Senate bill ... or to take up [the existing House bill]," said House Minority Leader Nancy Pelosi (D-Calif.).

"Instead, secretly, the Republicans brought a much-diminished bill to the floor," Pelosi said. She added, "Senator Grassley's remarks are stunning, and a stunning indictment of the House Republicans."

If any version of the STOCK Act is to pass, House and Senate leaders must now appoint a conference committee; they are expected to do so.

Facebook Follies

Going Public
by DEAN BAKER

The big business news last week was that Facebook is going public with an initial public offering (IPO) that is likely to place the market value of the company in the range of $100 billion. This price would put Facebook among the corporate giants in terms of market value.

By comparison, Goldman Sachs, of vampire squid fame, has a market value of $55 billion. Ford’s market value is less than $16 billion. With its current market value near $106 billion, Facebook would even give a serious run to Verizon, the giant telephone company.

While the implied value of Facebook is impressive, a question that was raised in several stories was whether the company would really be worth this much money. Some simple back of the envelope calculations show that Facebook would have to gain an enormous share of advertising expenditures over the next 5-10 years in order to generate the sort of profits needed to justify this current price.

Of course that doesn’t mean it’s impossible; Google went public with a very high market capitalization in 2004. Less than eight years later its stock price has gone up by a factor of six. Someone would want to do some serious homework before ruling out the possibility that Facebook is actually worth its current stock price.

At the same time, there have been numerous cases of companies becoming market darlings when they were most definitely not worth the price. The best example of a failed market darling is probably the Internet giant AOL, which had a peak market value of over $220 billion in 2000. The price tag for AOL today is $1.8 billion.

In the case of AOL, the founders managed to cash out before things went sour. It used its stock to buy Time-Warner, one of the largest media companies in the world. In effect, AOL got Time-Warner to sell itself for nothing, since the value of the AOL stock used in the purchase would soon be a tiny fraction of the value of Time-Warner.

The big losers in that story were the shareholders of Time-Warner, who saw a big hit to the value of their holdings. Needless to say, the executives who engineered the give-away of Time-Warner did just fine, walking away with tens of millions of dollars.

And the top executives at AOL, most notably Steve Case, its co-founder, also did fine. The deal allowed Case to walk away with billions of dollars, making him one of the country’s richest people.

Suppose that Facebook ends up looking more like AOL than Google; who would be the losers and who would be the winners? Well, the losers would be the people who jumped on the stock near its peak. If it turns out that Facebook is just an overnight sensation that is either unable to hold onto its market share or to effectively turn its massive social networking franchise into a money making outfit, then people buying its stock near its IPO price will have thrown much of their money in the garbage.

If individual investors knowingly take this risk and end up losing, that is the way markets are supposed to work. Insofar as the purchasers are institutional investors who end up losing money for pension funds, university endowments, or mutual funds in 401(k)s, it will raise serious questions as to whether the managers of these funds were doing their homework or just got caught up in investment fads, as they have so many times in the past.

On the other side we have the early Facebook employees who will walk away with millions, and of course its founder, Mark Zuckerberg, who stands to walk away with tens of billions. At a time when there is new attention being focused on inequality and the 1 percent, it is interesting to ask what Mr. Zuckerberg — who stands to rank at the very top of the 1 percent — has done for his money.

If it turns out that Facebook goes the AOL route, then Zuckerberg will effectively be the P.T. Barnum of the social media economy. He will have succeeded in creating incredible excitement and buzz that led people to voluntarily give him their money for nothing.

The result will be that many people will be somewhat poorer and Zuckerberg will be incredibly wealthy. He will be able to buy whatever he and his friends and family might want as long as he lives. He will be able to promote whatever philosophy he likes (e.g. school reform based on test scores) through charitable donations and political contributions. And, the media will treat him as a person with brilliant insights for the rest of us on how to run the country and live our lives until the day he dies.

This is a process whereby we redistribute money upward to the very rich. In this case, the key actors are highly paid money managers who don’t know anything about managing money, just as in the AOL case it was incompetent executives at Time-Warner. In a properly working market economy these people would pay an enormous price for such disastrous incompetence, but that doesn’t describe our current economy.

Of course we can always hope that Facebook is really worth its market price.

Will Facebook Make Advertising Too Personal?

Timeline here. Mobile ads coming.

Chris Crum | December 18, 2011 

Online advertising is growing. Facebook is getting more personal. What does this mean for users being targeted by advertisers?

The Interactive Advertising Bureau reported that third quarter revenues from online advertising are up 22% year-over-year. Here’s a look at the trend:






 
Facebook is becoming an increasingly attractive channel for businesses. Part of it has to do with the fact that 800 million people use Facebook. Part of it has to do with the incredible targeting opportunities that come along with those users and all of the information they share. MerchantCircle shared this infographic looking at where local merchants are spending their marketing dollars.






Notice where Facebook is at. And how long do you think it’s going to be behind print – especially once Facebook starts offering mobile ads.

Oh yeah, by the way, Facebook is going to start offering mobile ads, probably ahead of its IPO. The company is already sitting on a $3.5 billion pile of money. How much do you think mobile ads will help?

Facebook was already expected to leapfrog Microsoft in ad spend this year, without mobile.

Again, Facebook has some really good targeting capabilities, and this is something they continue to expand on. They recently added topic targeting to the mix, but they let advertisers really drill down into interest and “likes”. If I’m a fan of “It’s Always Sunny in Philadelphia,” merchandisers can target me with products related to the show. T-shirts, coffee mugs, etc.

That’s already pretty powerful. Add mobile to the equation, and then physical location will likely come into play as well. At that point, if you own a brick and mortar store that sells these items, and you’re nearby, you can target me based on that (in theory).

Now, Facebook has launched the Timeline, encouraging users to put their entire lives on Facebook. Keep giving Facebook more and more information about yourself, including your past. Facebook ad targeting is already based on what users put on their profiles. Well, the timeline is the profile, and Facebook’s goal is for you to share more and more. Why stop at what you did today, or what you’re doing now. Share anything you want dating back to your birth. I can’t imagine the advertising potential of something like this.

Perhaps I put a dentist appointment on my timeline. Maybe dentists can advertise to me when I’m due for a teeth cleaning. Let’s say a loved one passes away. Facebook has a feature for this with the Timeline.

Are we going to see ads for funeral homes popping up? Would this be ok? It sounds kind of creepy and disrespectful, but on the other hand, this is indeed when you might require such services.

Here’s what the timeline looks like on mobile devices: