Morgan Stanley (MS) didn't set the Facebook IPO price -- investors did.
It is really that simple; the price is set by what the public wants it to be, and.if there wasn't high demand for it then the price would have been set lower.
The same principle holds true for just about any product or service -- it is called Supply and Demand 101.
Prior to the IPO, I wrote that the shares were being priced about 40% overvalued. All investors have a responsibility to know what they are doing with their money. I worked at Morgan Stanley for about 20 years and was very fortunate to bring many companies in and through the IPO process. At no time did Morgan Stanley force anyone to buy any shares of anything, including IPOs.
The firm's job, in the most simplistic explanation, is to offer shares to the public through what is best termed a Dutch auction. The price settled on is not a Morgan Stanley decision -- it is based on the amount the book is oversubscribed, and the Facebook (FB) offering book was over subscribed.
However, I don't remember there being a federal mandate that required anyone to buy shares of Facebook. If you didn't want them at the offering price then you didn't need to buy them. The idea being battered about that somehow Morgan Stanley and Facebook did something wrong is pure nonsense.
We live in a culture these days that's too quick to blame others for our circumstances. Look in the mirror. Morgan Stanley's client was Facebook, and the mandate was to offer the shares to the public. They did just that.
The public determined the correct price based on supply and demand to be $38. Enough said.