How Facebook could destroy the U.S. economy


Yes, endangered. The number of public companies has declined 37% since 1997. The number of IPOs has dropped from 311 annually before 2000 to 99 the past decade. Meanwhile, the smart CEOs and the Super Rich are “going private,” to avoid government red tape restricting capitalism. Over at BusinessWeek they’re warning investors that the growing number of “cutesy mascots” is a dangerous reminder “of the dot-com boom’s irrational exuberance.” They’re also red flagging new reports that “more Chinese investors are betting on U.S. start-ups.” And feeding the flames.

What’s going on? Facebook’s in trouble, that’s what. Now in the crosshairs of public scrutiny, everybody’s taking potshots. And the warnings are just beginning:

Everything from Facebook /quotes/zigman/9962609/quotes/nls/fb FB -8.90% being “too big to fail or succeed” to a Chicago attorney warning that the stock could “crater” if Facebook can’t grow revenues 41% annually for five years to “sustain its value” to a warning that Facebook’s one of the “Black Swans” that could eventually bring down the global economy.

Let’s begin, shining the bright light of behavioral science and psychology on what’s going on:

Facebook’s billion ‘friends’ in denial — deja vu the 1999 bubble mania
Behavioral economics is the new “psychology of denial.” Yes, it’s like falling in love. You can’t hear, can’t see the warning signs. Till after. After months of hype building up to this IPO, you’re convinced Facebook is your soul mate, that not getting shares in that IPO would leave you devastated, rejected by your true love. And nothing anyone says about the risks will change your mind. That’s the “psychology of denial.”

There are four main reasons for this pervasive psychology of denial among Main Street’s 95 million investors: First, investors hate admitting we’re irrational and ill-informed, cling to the fiction they’re rational. Second, optimism is the investor’s worst nightmare, but Americans still act optimistic no matter the odds. Third, Wall Street loves investors who are irrational, uninformed and optimistic, they’re easy to manipulate. Fourth, American investors are by nature trusting folks, want to believe Wall Street’s telling the truth, even though most of the time they aren’t.

The Facebook mystique is so powerful today that in our minds Facebook truly is too big to fail. Facebook will never fail, Facebook will just keep growing indefinitely at rates that would remind us of the old dot-com mindset of 1999, hail Facebook, you are too big to fail and nothing will change our minds.

And paradoxically, that’s exactly why Facebook is the ultimate economy-killer.

Could our friendly Facebook really bring down the economy?

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