This week, Arthur Brisbane, the public editor at The New York Times, took his own paper to task for not expressing enough skepticism about Facebook's stratospheric stock price before its disastrous IPO on May 18. "The Facebook story seemed to ride an ever-higher wave of media attention," says Brisbane, sweeping up average investors who wanted a piece of the company led by Mark Zuckerberg, whom The Times praised in hagiographic fashion as belonging to "a line of revolutionaries stretching back to Gutenberg." Since the IPO, Facebook's share price has plunged from $38 to the mid-$20 range, causing significant losses for investors. Are The New York Times and other media outlets to blame for the IPO hype?
Yes. The media wasn't skeptical enough: We could have done more, "especially for the general reader who relies on The Times to explain the risks of the stock market," says The Times' Brisbane. The paper failed to adequately examine signs that Facebook's stock price was overpriced, given the company's weakness in the smartphone market and other areas. On the day of the IPO itself, The Times should have waved "a red flag prominently" instead of reporting that tech IPOs often achieve double-digit gains on the first day. "Closer attention to the needs of the average reader could have yielded more focus on the risks, more skepticism, and an even better outcome."
"Wall Street and the average reader"
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No. It's not the media's job to protect investors: It is "completely bonkers" to suggest that The Times and other media outlets should have warned "individual investors that Facebook stock was going to go down rather than up," says Felix Salmon at Reuters. The media could not have predicted Facebook's stock plunge — "it's not smarter than the markets as a whole." The Times devoted lots of columns to the Facebook IPO for the simple reason that it was "a big news story, which deserved a significant amounts of coverage." It isn't "incumbent on The Times to write articles for" unsophisticated investors thinking about getting into the market.
"Hoping for a better NYT ombudsman"
And investors should have known better: The hand-wringing over "gullible investors who got singed" is getting out of control, says William D. Cohan at Bloomberg. Investors have to understand that "investing in IPOs is a fool's game" rigged for three groups: Wall Street banks, institutional investors, and the company going public. Small investors are not a part of the equation, and by participating in the frenzy, they actually helped fuel the "Facebook IPO hype machine."
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