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Best of the Blogs: The One Reason Facebook's IPO Wasn't a Ponzi Scheme


Plus, Best Buy contradicts itself in its negotiations with its founder and former chairman.

This column highlights the most interesting and useful business and financial commentary from around the Web each day.

The Reformed Broker
Link: Why Facebook's IPO Was Not the Largest Ponzi Scheme in History

"Bernie Madoff's ponzi scheme ran for multiple decades and was, at one time, estimated to encompass roughly $50 billion dollars - a record-breaker. Underlying it was a legitimate business (broker-dealer, investment advisor, hedge fund) but the returns were faked and so was most of the activity. I bring this up because I keep hearing a persistent undercurrent of furor about how 'Facebook's (FB) IPO was the largest ponzi scheme of all time.' Upon researching all available definitions of the term, I believe that it was not. But it took me awhile to get there, I admit.

"Facebook attained a valuation of almost $100 billion dollars and when it ran out of new investors (upon coming public), it's value promptly collapsed. In half. In an extremely short period of time (90 days). Everything about that feels scam-my. But a ponzi scheme? Let's look at what that term actually means[.]"

The Wall Street Journal: Deal Journal
Link: Best Buy Offers Waiver for Minnesota Law It Doesn't Think Matters

"Just days after Best Buy (BBY) said its founder and former chairman didn't need its permission to form a buyout group, the electronics retailer offered a 'waiver' granting Richard Schulze just that.

"Schulze turned down the offer, and several other proposals, Best Buy said late Sunday in a statement that laid out the steps the company had taken to try and get Schulze to the table.

"The apparent shift in language on whether or not permission is needed has to do with a previously obscure Minnesota law that has become a centerpiece of the battle over Best Buy's future."

Link: Recall Central: GM Recalls 250,000 Chevrolet Trailblazer, GMC Envoy, Buick Rainier, Isuzu Ascender, and Saab 9-7X SUVs

"General Motors (GM) is recalling some 250,000 mid-size SUVs from the Chevrolet, GMC, Buick, Isuzu, and Saab brands for driver's door electrical short circuits. Meanwhile, Suzuki is recalling about 100,000 Forenza and Reno vehicles for wiring issues, and BMW's supplier Valeo is also recalling 585 coupes and sedans for electrical short problems with the cooling fan."

The Big Picture
Link: Revisiting Stocks for the Long Run

"For the last few years we have been poking fun (hopefully in a good-natured way) at the book Stocks for the Long Run.

"About halfway through this historic equity bull market, in 1994 to be exact, Dr. Jeremy Siegel first published Stocks for the Long Run. The Washington Post called it 'one of the ten best investment books of all time.'

"Dr. Siegel posited stocks are less risky than bonds as holding periods lengthen. The following table displays the relative frequency of stocks outperforming either bonds or Treasury bills as a function of holding period. Specifically, stocks outperformed bonds over a thirty-year holding period 100% of the time from 1871 to 1993. From 1802 to 1993 stocks outperformed 97.2% of the time. The only time other than the present when stocks underperformed bonds over 30 years was the 1840s."

CNNMoney: The Buzz
Link: Spanish and Italian Stocks Are Red Hot

"Spain and Italy have been a major source of concern for global investors, but you wouldn't know it from the stock markets in those countries.

"Monday was a down day for most European markets, but stocks have been rising across the continent since European Central Bank president Mario Draghi made his now-infamous remark that the ECB will do "whatever it takes to preserve the euro" late last month.

"Since Draghi uttered those words on July 26, the IBEX 35 (^IBEX) in Spain has gained 17%, while Italy's FTSE Milano Italia Borsa (FTSEMIB.MI) is up 13%."

The American
Link: Five Myths About Glass-Steagall

"When Sandy Weill, the former chairman of Citigroup (C), told an interviewer that he thought it had been a mistake to repeal Glass-Steagall, it unleashed a gale of commentary that reflected a remarkable degree of ignorance about the alleged role of Glass-Steagall in the financial crisis. The five myths discussed below do not cover all the misconceptions that seem to be held by those who want to restore Glass-Steagall, but they cover some of the most widely discussed."

Twitter: @ChrisWitrak
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