Morgan Stanley Did Right by Facebook

NEW YORK ( TheStreet) -- Henry Blodget sort of beat me to this but let's have a few kind words for Morgan Stanley ( MS) anyway.

It didn't screw up the Facebook ( FB) initial public offering. It did great by Facebook management.

Let me start with a story about my late friend Rufus, who owned a rental house on my block 15 years ago.

Rufus had owned the house for years, and got a nice income from it. But he was aging and thought he could get a good price. An offer came in, for $40,000, and he sold.

A month later, that buyer flipped the house for $80,000. A few months later, after some superficial renovation, it sold again -- for $160,000.

You think old Rufus was happy with the broker who told him to take the $40,000? I don't. What the broker knew, what he didn't tell Rufus, was the Atlanta "color line" had just moved a few miles south. Somehow, after the Olympics, the real estate industry sort of got together and decided that, gee, my block was just two miles from Emory University and was now golden. The house hadn't moved. There was just some new information in the market the broker didn't tell this seller.

Now, if Morgan Stanley had been handling Rufus' house, it might have gotten the full $160,000. It might have gotten $200,000, and that seller might have had to wait years for a gain. (The house is now worth well over $200,000, by the way.)

That's basically what Facebook got from Morgan Stanley. It got a full price for the shares it was selling. It got $10 billion in cash with which to build the business.

I'm supposed to think this is a bad thing.

Google ( GOOG) did something like this when it went public in 2004. HowStuffWorks has a nice explanation of the "Dutch auction" process the company used to try and maximize its value and give everyone a shot at some shares.

Google stated how many shares it would offer, then took electronic bids. (Morgan Stanley was one of the underwriters.) The result was a sale at $85/share. Google is now over $900.

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