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June 18, 2012 8:36 AM With-a-fountain-pen Dep’t

By Mark Kleiman

Facebook went public at $38 per share, and is now trading at $30. So Morgan Stanley, the lead underwriter, and its accomplices partners at Goldman and J.P. Morgan, did an excellent job for their customers (Facebook and its selling shareholders, including Goldman itself) while leaving the public – including Morgan Stanley’s own retail customers at Smith Barney – holding the bag for something north of $3 billion.

They also did quite nicely for themselves, thank you: $176 million in underwriting fees plus $125 million in trading profits.

It’s the trading profits that leave me puzzled. The WSJ reporter writes, “Morgan Stanley and the other banks made additional money through their attempts to buoy the faltering stock early on.” But attempting to “buoy” a stock means buying it. How do you make $125 million buying a stock that opened at $44 and is now trading at $30? They must have sold into any temporary rally generated by their support efforts. So it sounds to me as if the banks figured out a way to fleece the suckers twice.

As the man said, “There’s no such thing as a gentleman when real money is on the table.”

[Cross-posted at The Reality-based Community]

Mark Kleiman is a professor of public policy at the University of California Los Angeles.