California Bet 2% Of Its Budget On Facebook's Stock Price Remaining High

from the oops dept

Fri, Aug 3rd 2012 11:22am — Mike Masnick

California, a state that has had budget problems for years, apparently bet approximately 2% of its budget on the idea that Facebook's stock would remain at or above $35 and that a bunch of insiders would sell, racking up tax revenue for the state. However, with the stock continuing to drop, the state's fiscal analyst is now warning that perhaps over a billion dollars in expected tax revenue may be at risk. The state's budget is $91.3 billion, and that was built on the assumption that a successful Facebook IPO and insider sales (at an average price of $35) would bring in $1.9 billion. Of course, the stock has been in decline since its IPO, dropping below $20, hence the concern.

What I love about the linked article, however, is that the Bloomberg reporter sought to get a comment from Facebook over this (the company declined). What did he think Facebook would have to say? That it would try harder? That it felt bad that the state overestimated its stock price just about as much as the company itself did? I would imagine that budget overruns by the state due to Facebook's falling stock are pretty far down the list of priorities for Mark Zuckerberg these days...

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Filed Under: california, stock, taxes
Companies: facebook

33 Comments

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Anonymous Coward, 3 Aug 2012 @ 11:37am

Is this a common practice (serious question)? Using money from the budget in the stock market seems like a clever but incredibly risky, and even slightly foolish thing to do.
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Jay (profile), 3 Aug 2012 @ 11:39am

Wow, my state just keeps f*cking up, doesn't it? This is REAAAAAAAAAALLY stupid, and whoever came up with this idea and whoever okay'ed it needs to be fired.
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Ninja (profile), 3 Aug 2012 @ 11:43am

I'm amazed at this Facebook debacle. Mobile access has made the ste much more relevant for many ppl and yet they haven't managed to capitalize on it. Amusing.
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weneedhelp (profile), 3 Aug 2012 @ 11:47am

Re:
From the land of the best weed in the USA its silly to not legalize and tax it.

Cuz weed is soooo hard to come by. /s

Puff puff give MF
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Glen, 3 Aug 2012 @ 11:47am

I was gonna say something about counting your chickens before they hatch, however, that point would go right over a politician's head.
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kenichi tanaka, 3 Aug 2012 @ 11:47am

So, California has also fallen to those "get rich quick" schemes. You would think that state governments would be wise to this since they're the ones always putting out those scam alerts to their own residents.

How many fools invested in facebook, hoping it would pay off? Not me. A fool and his money are soon departed.
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Anonymous Coward, 3 Aug 2012 @ 12:01pm

Re:
They weren't using state money in the stock market, they were counting on all the FB employees (who, btw, are mostly residents of the state of CA) selling off stock options and then paying taxes on those gains.
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Beta (profile), 3 Aug 2012 @ 12:08pm

Re:
What do you expect from a state whose history began with a gold rush?
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Anonymous Coward, 3 Aug 2012 @ 12:11pm

Who do I call and harrass?
Being a California resident, a facebook hater, and someone who has lost half his investments in the stock market in the last 5 years...

Who do I call to complain to about this ridiculous assumption that someone made?
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Berenerd (profile), 3 Aug 2012 @ 12:22pm

Re:
This is actually common though I have not heard of a state investing in a single IPO like that. When I worked for the State of VT they had an entire group of people that would invest in banks for a single 24hour period and work with people to get the best return for that 24 hour period.
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Anonymous Coward, 3 Aug 2012 @ 12:29pm

Re:
I dont know, I made a nice chunk of change off of lovely facebook...
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PGP_Protector (profile), 3 Aug 2012 @ 1:03pm

Re:
Remember this is California you're talking about. Land of the Fruits & Nuts. Problem is the people took that to heart and put a bunch of Fruitflakes & Nuts in charge.
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New Mexico Mark, 3 Aug 2012 @ 1:27pm

How about...
If only there were a way CA state government could place a large bet against their own political and fiscal wisdom. That seems like a sure thing to me...

I know governments have to try to project revenues, but it seems to me that potential profits from Facebook insider selling should have been treated as a windfall if successful, not a line item for expected future revenue.
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Anonymous Coward, 3 Aug 2012 @ 1:28pm

Re:
Did you actually pay any attention to what the article said? The state is not investing budget money in the stock market. The article is saying that the state budget office, expected to generate tax revenue based on the people who owned FB stock selling it. In other words, basically we are talking about state derived income tax revenues.
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ShellMG, 3 Aug 2012 @ 1:29pm

Re:
The City of Detroit, where corruption starts from the top down and has for +40 years, invested a lot of money from their pension funds in very dubious schemes. The unqualified reps on the pension board wasted unbelievable (wait...it IS Detroit) sums on trips overseas, luxury resorts, restaurants, etc., with money from the pension fund. Now the fund is way too short -- even taking the decline in the stock market into consideration -- to cover their obligations.

I guess the only silver lining is that Detroit didn't invest their day-to-day money the same way. It disappeared into the pockets of the Kilpatrick Machine long before it could make it that far.
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Anonymous Coward, 3 Aug 2012 @ 1:41pm

Well look at Zynga that fad is about over and I know it shows Facebook making 15-20% from them or whatever but I think it's probably more.

If you've ever played one of their shitty games just look at the massive ad spam.

I'm don't even log on Facebook anymore because they keep fucking everything up by "fixing" shit that was not broke in the first place.

I got sucked into the little pay to win games but after deleting my FB it feels good to hunt for the next big thing.

I know the two contradict themselves when I say "I deleted it and I don't even log"
Here's why Facebook loves to keep your shit anyways even if you do delete it.

Evil fuckers :/ oh well nothing on it of value anyways. No phone or valid address or a full name lol.
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Anonymous Coward, 3 Aug 2012 @ 1:46pm

Facebook didn't set the price of the stock. Those same too-big-to-fail banks did that. (one in particular) One bank in Sweden I believe it is, is suing because the computers went down, and that caused multiple purchases because the initial purchase could not be verified.

The whole dog and pony show that Facebook IPO revolved around was a mess from the start.

These politicians gambling on the value of a stock being sold by it's investors living in their state is a shame. It's a form of gambling with them looking for any excuse to bail them out of their wild spending spree and you're just looking at another example. Truth in finances has been missing not just from the state of California but also from other states as well as the Federal government. All of them seem to be trying to balance the books by gaming the system with betting on eggs that haven't hatched yet.
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Anonymous Coward, 3 Aug 2012 @ 1:50pm

Hmm, I forgot to mention, Social Security is another of these scams. The politicians got in and spent the money, leaving behind IOUs, which they are not trying not to honor by cutting the benefits owed. This started back in the Johnson administration and is still going on today.
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Chosen Reject (profile), 3 Aug 2012 @ 1:50pm

Re:
Wouldn't it be nice if governments could only spend what they've already made, rather than spending what they hope future politicians will be able to wrangle from our great grandchildren?
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Hephaestus (profile), 3 Aug 2012 @ 1:54pm

Re: Re:
Your went short on the stock?
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Beta (profile), 3 Aug 2012 @ 2:04pm

Re: How about...
Yes, betting against their wisdom would be a sure thing. But if they bet on that sure thing, it would be a...

Wait...
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Pwdrskir (profile), 3 Aug 2012 @ 3:04pm

CalPERS is goin' down...
The GASB is changing the way that States & Cities post their pension liabilities, making them officially show the unfunded liabilities on the books. Entities that have an incentive to pretend that these liabilities aren�t real liabilities are going to get a rude awakening � see BK cities in CA.

Kevin Williamson wrote �GASBombed, The accounting-standards board is about to nuke state and local budgets � and it�s about time.� May 15, 2012
http://bit.ly/LlE3a2

Excerpt from article:
�CalPERS, the gargantuan California public-sector pension system, managed to avoid making adequate pension contributions for years by convincing the state legislature (which was only too willing to be convinced) that the Dow would hit 25,000 in 2009. (It didn�t. And it also may not hit 28,000,000 by 2099, as CalPERS predicted.) The legislature used those numbers to justify an enormous increase in pension benefits for California�s public-sector parasites, at a theoretical cost of $0.00: �No increase over current employer contributions is needed for these benefit improvements,� the fairy tale went. Those who want a stronger government whip hand over the investment industry should consider how governments act when they are investors.�
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Anonymous Coward, 3 Aug 2012 @ 3:29pm

The fundamental problem in CA is that an unusual percent of their revenue is based on collection of personal income taxes. When the economy is riding high, this works out well for a state that has the 8th (ish) largest economy in the world and accounts for 10-15% of the entire US economy. The state makes a lot during economic bubbles.
The problem comes in that the budget, in a process that can only be described as "dumb-ass", is set based on projected revenues. An economy can collapse, with very little warning, inside of a budget cycle. Which leaves the state screwed, until the economy rebounds.

The economy does always rebound. And CA usually leads it. (for various reasons, not least of which IS that ef'd up tax code.)

CA pays more in federal taxes than it receives in federal services. People in net consumer states (and I'm talking about some of the flyover and YOU Mr.southeast), need to temper your rhetoric. When your state economy is actually PAYING for the services it receives, I'll be much more inclined to give it a listen. Or, you could go "money where your mouth is Tea Party" and simply decline all those federal services. Set an example. Say "no" to unemployment money, highway funds, welfare, medicare, etc.

For those in Cali that don't like it: move. There are 49 other states to choose from :)

(I came from CA, where I've through more than one boom-bust. I've lived all over the map in the US (TX, NY, KS, TN, NJ, NE, etc.). Now I live abroad, with the goal of gaining citizenship in other countries. (For future security, should the US royally screw up and elect a republican disaster, again). CA is still my fave place.)
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Anonymous Coward, 3 Aug 2012 @ 6:48pm

Re: Re:
You got it, but Mike certainly was willing to write a heading that was fairly misleading.

California didn't bet anything. They didn't take 2% of their budget and bet it on black on a roulette table. They made budget assumptions based on something, which didn't turn out to be true. The lack of truth is enough that many lawsuits are pending over the issue.

The state of California did nothing wrong. They apparently were as mislead as all of the early IPO investors.

Mike once again dips to yellow journalism to try to score points, all that is missing is a silly graphic to back it up.
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Howard T. Lewis III, 3 Aug 2012 @ 10:44pm

Fakebook
Poor thing.I guess rubber body appliances took their minds of reality. Only in California.
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Vox, 4 Aug 2012 @ 4:33am

This shows the jooish connection
This shows the "jooish connection". Facebook, well known to be yet another jooish scam non-product and the school board controlled by jooz, felt no remorse over investing the goyim's money on one of their tribe's inventions on the promise that the goy's money would help enrich one of their own and well if the goy lost their money well it just shows the goy are idiots.
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Dave Mowers, 4 Aug 2012 @ 6:33am

Re: Re:
Ironically had California established a State bank and invested in home mortgages, car loans, credit cards etc with the common people it would not have these problems and would have even been eligible, like Wall Street investment banks are, for zero percent interest loans. Instead they bank on stock pump and dump schemes and give that investment income from tax revenues to Goldman Sachs to manage for them for no profit.
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skinny poppy (profile), 4 Aug 2012 @ 7:40am

Guess California didn't plan for that other big shareholder to renounce his US citizenship. Big risk can reap big return sometimes, probably not this time.
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Anonymous Coward, 4 Aug 2012 @ 8:39am

Re: Re: Re:
"California didn't bet anything."

Sure they did.

Counting chickens before they are hatched dependent upon the stock market? The market is risky. Don't bet what you can't lose.
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Big M, 4 Aug 2012 @ 10:56am

"California" didn't bet anything. A handful of slimy crooks, who manipulate the books and don't tell the people of the state that they're sitting on hundreds of billions of dollars in liquid assets, did the betting.

And a budget has nothing to do with the financial health of a state, business or household. It's nothing but a tool.
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Anonymous Coward, 4 Aug 2012 @ 9:38pm

Re:
You are a Terminator fan aren't you?
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Anonymous Coward, 6 Aug 2012 @ 2:28am

Re:
it wasn't actually invested in Facebook; the money is Stamp Duty on sales mostly I would imagine.

although some investment is done by the states, it's usually surpluses.
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Anonymous Coward, 6 Aug 2012 @ 9:42am

Re: Re: Re: Re:
No, that isn't making a bet - that's just poor forecasting. Mike wrote it in a manner that suggests that the state purchased stock or placed a bet on the company. They didn't. They just forecast poorly, based on the insane over valuation that much of the stock market placed on this "air seller" company.

Perhaps it's better to explain that they were trying to fill their budget, and gladly accepted numbers that were a little speculative. No betting though.
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