This article doesn't make any sense. For example: "the more Facebook shares fall, the more money Morgan Stanley and Facebook IPO underwriters make". This would only be the case if the banks were short the company which no one has confirmed yet and is usually not the case. In fact, some believe that Morgan Stanley bought a large number of shares above $38.00 in order to prop the price up on the opening day, in which case it would be setting on a very large loss.
Agreed. That is not how underwriting works. Also, the first FB shorts have not come due yet.