Why Facebook is going public now

Diane Swonk Feb 2, 2012

Jeremy Hobson: Now let’s get to Facebook, which filed late yesterday its plans to sell stock to the public. Probably sometime in May. Analysts have been waiting for months, maybe even years, for this announcement. So why did it happen now? Diane Swonk is chief economist with Mesirow Financial. She’s with us live from Chicago, as she is every Thursday. Good morning, Diane.

Diane Swonk: Good morning.

Hobson: So why is now the moment for a company like Facebook to decide to go public?

Swonk: Well a lot of IPOs were waiting on the sidelines for the market to do better. And in fact, January was a very robust month for market gains and so it gives an opportunity to sort of ride that wave and try to get the best pricing you can.

Hobson: And what is it about a strong market that makes it good for a company to decide to go public?

Swonk: Well, of course, they want to get as much money as they possibly can and they get better value in a market where people are moving in to make riskier bet on the future. IPOs are those kinds of bets. You’re betting on a company that’s just brand new, higher chance of failure. But it also could have much higher returns for anyone who’s trying to get some returns out there.

Hobson: Now you focus a lot on the Federal Reserve, which has been trying to reduce interest rates and therefore, in some ways, get people to get off the sidelines and into the marketplace. Is this happening? Is the Fed’s dream coming true?

Swonk: Well this is part of the Fed’s dream. I mean, they’d like to see a lot more market activity. Much of the magic of the 1990s boom in employment was driven by small businesses, IPOs, and new business formation. Of course, a lot of that wasn’t sustainable. But the idea is to get people from making non-productive investments, holding onto cash, and getting them into making more productive, riskier investments in the future. So some of this is happening — investing in equities, investing in high-yield bonds. That movement has begun to occur as the Fed has taken the actions it is. So this is the direction the Fed wants to move, just not as fast as they’d like to see it occur.

Hobson: Diane Swonk, chief economist with Mesirow Financial. Thanks as always.

Swonk: Thank you.

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