Facebook flap: Research teams at Morgan Stanley and other Facebook underwriters cut earnings projections after updated regulatory filings on May 9 showed Zuck & Co. struggling to make money on mobile—and those adjusted projections put Ma & Pa Facebook Fan at a disadvantage. How's that? The less-rosy projections, which Reuters reports Facebook urged on its investment bankers, were distributed to the big pools of money, but not to retail investors.

The Financial Industry Regulatory Authority, Wall Street's self-regulator, says the issue bears scrutiny, and the state of Massachusetts has subpoenaed Morgan Stanley. Henry Blodget is mad.

But it appears that rules that forbid underwriters from "marketing" IPOs by widely publishing research in the weeks before an offering will give Facebook's bankers cover. Likewise, for all the hand-wringing Nasdaq's executives have done over Friday's botched opening, the exchange's plan to return $13 million to investors feels like so many small potatoes.

After all, Facebook fell to $31 yesterday, down 18 percent from its offering price, wiping out billions in market value.

Said what, when?: “Our focus is on the quality of their risk disclosure,” said SEC chairwoman Mary Schapiro at Senate Banking Committee hearings yesterday. Ms. Schapiro's remarks indicated that the agency will focus on JPMorgan's Value at Risk calculations, according to Bloomberg.

No fee for you: Investors such as the Harvard University endowment and Abu Dhabi are building in-house operations for real estate investment, in hopes of side-stepping fees charged by so-called pooled funds.

Patch-y feeling: Starboard Value, the activist investor waging a proxy battle for seats on AOL's board, said that Patch, the company's hyper-local news service, should be sold in part or whole, or closed outright. AOL CEO Tim Armstrong has promised to make Patch profitable by next year.

Cards checked: The Consumer Financial Protection Bureau is preparing new rules for prepaid debit cards, which have become a growing source of income for banks in recent years. "The people who use prepaid cards are, in many instances, the most vulnerable among us,” Richard Cordray, the consumer bureau’s director, said in a statement.

Domino effect: European banks have taken preparatory measures for a Greek collapse, but remain vulnerable to likely deposit-flight and rising defaults in Portgual, Italy and Spain in the event that Greek leaves the eurozone.

Timber!: The Ontario Securities Commission filed a fraud suit against Sino-Forest, the Chinese timber company that lost much of its $6 billion market value on the Toronto stock exchange after Muddy Waters Research published a report indicating that the company had overstated resources.

In the case of one, mercifully unnamed, employee, it appears it was the in-office beer taps (a Tim Armstrong signature, according to Forbes)--not the company retreat to the Dominican Republic--that did him or her in.

He or she sent Business Insider's Nicholas Carlson the following e-mail:

Hey Nick,

While you losers at BI are busy hating on us we were at the Hard Rock in Punta Cana last week. That's right President's Week Bitch. The most expensive week of the year to travel. Plus here at HQ we now have beer on tap and nap rooms. So why don't you piss off? Or are you just jealous you don't work here?

Screw BI and Go PATCH!

Reader, it included photos of a Patch sand sculpture and a bunch of sunburned ad executives awkwardly posed in sundresses.

AOL struck a deal with American Express to use Serve, which is AmEx's competitor to PayPal, on Patch Deals, which is Patch's competitor to Groupon, according to a press release sent out this morning. And we bet their user-feedback is much more advanced than the originals.

Hearst magazine websites will now be shoppable experiences, chief revenue officer Kristine Welker tells the New York Times. That goes beyond mere "shop this look" features, and into full brand partnerships, like one between House Beautiful and Azko Nobel paints.

When scrolling over images of painted walls on the website, users will see similar colors, the price, and a link to buy.

“We look for those mark

eting opportunities that are disruptive, unexpected and true to the brand voice,”Azko Nobel vice president for marketing Rob Horton told the Times.

Just we need, more disruption.

And as long as we're mixing business and editorial, why not de-stigmatize checkbook journalism too? According to Poynter, ABC's Chris Cuomo paid Megan Broussard $10,000-15,000 for her (er, his) Weiner photos. He told Howie Kurtz:

The commercial exigencies of the business reach into every aspect of reporting now … It is my decision. I’m the anchor of ’20/20.’ I could have said, ‘Don’t do it.’ I don’t because it is the state of play right now. I wish it were not. I wish money was not in the game. But you know, it’s going to go somewhere else. You know someone else is going to pay for the same things. The question becomes what you’re paying for. You’re paying for these photos, why? Because they are the key to the exchanges. And this became about photos. This became about things that had to be real. So I needed them. And that is the state of play, Howie, I wish it were not. You do too. But it is the state of play.

But according to AOL/HuffPo editor Saul Hansell, Patch is simply ahead of it's time. It's like building the railroad 150 years ago, he said on a panel about the Future of Media (unrelated to the "Future of Media" report by the FCC which Mr. Peters and Mr. Stelter refer to.) We assume he meant that Patch's infrastructure and influence will redeem its high overhead costs, but let's not forget that the transcontinental railroad was mostly realized by underpaid imported laborers, too.

If you get off on making and listening to smug prognostications, we suggest throwing your name in the hat for Columbia Journalism Review editor in chief. "The editor in chief position was made possible by a funder, and I think part of the idea is somebody who enjoys meeting funders and being on future-of-journalism panels more than I do. I would rather go to the dentist than be on a panel," CJR executive editor Mike Hoyt told Romenesko.

Patch's first round of hires were fresh journalism school graduates who quickly burned out or turned over, James Rainey reports. Three South California-area Patch editors quit less than 8 months on the job.

Replacing them are older writers and editors (many of them former LA Times staffers) who bring "writing chops and savvy."

The subtext here is that the only people willing to work Patch's reported 70-hour weeks for $30-50,000 salary (Raines reports this is less than half of what LA Times editors make) are mid-career journalists coming out of early retirement brought on by newspaper layoffs.

According to Belmont Shore Patch Editor Nancy Wride, it's not about the money, anyway:

"I didn't take this job for the salary," she said said. "I took the job because I believe in it. I saw it as a way to serve the neighborhood, to be able to be a mom and have almost total autonomy in how I run the site. I can do hard news or fun features and work with a team of people that I hand-pick."

Many journalists surely relate, but it's not as if AOL is a non-profit. Won't AOL executives make ten times Wride's salary by selling her community investment? But then, maybe we're just another entitled, lazy millennial.

Check out Ten of Page Six's Best Items.>>

@kstoeffel | kstoeffel [at] observer.com

Trepidation about the rapid rise of Patch hasn't been limited to its competitors. Though few other companies are making widespread hires, journalists seem skeptical of Patch's business model and the quality of its content. OJR's Robert Hernandez attended the recent Online News Association conference in D.C. at which, he said, the company elicited "cautious pessimism" from participants. In September, Patch sites were caught up in two separate instances of plagiarism. 

So, Exactly how big is AOL's $50 million baby?

According to its website, Patch currently operates 344 local news sites and has another 210 "coming soon." Each Patch site has a full-time local editor who oversees a network of freelancers. Patch also employs regional editors and copywriters. Freelancers are paid variable rates based on article types. Based on conservative estimates of a $30,000 base salary for Patch staffers and a weekly freelance budget of $125 (five cheap articles) for each site, Patch paid out at least $10 million to its editorial staff this year. The actual sum is probably greater.

Patch got its start in New Jersey where it was was founded in 2007 by AOL CEO Tim Armstrong (who worked for Google at the time). AOL acquired Patch in June 2009. Today, Patch has operations in 17 states. California, which has 65 Patch sites, and New York, which has 51, are the largest strongholds of the Patch empire.  

The critical success of each Patch site will ultimately depend on the company's army of individual editors, who are given substantial autonomy and have vastly different levels of experience. Patch's financial success is a much more interesting question. The company clearly hopes it can survive in the cut-rate market for local online ads by adopting a more efficient business model than that of its competitors, allowing advertisers precise targeting as well as bulk placement. Time will tell whether its multimillion dollar gamble will pay off. 

Full Disclosure: Hunter Walker has written for Patch Santa Cruz.

“Local remains one of the most disaggregated experiences on the Web today -- there’s a lot of information out there but simply no way for consumers to find it quickly and easily,” said Tim Armstrong, AOL’s Chairman and CEO. “It’s a space that’s prime for innovation and an area where AOL has a significant audience and a valuable mapping service in MapQuest. Going forward, local will be a core area of focus and investment for AOL. The acquisitions of Patch and Going will help us build out our local network further with excellent local services that enable people to stay better informed about what’s going on in their neighborhood.”

But local isn't just "a core area of focus and investment" for online companies. It's a storied Times issue—and now their zoom level is getting even smaller. 

NYTimes.com's The Local news Web sites (which cover, in part, Patch's territory in New Jersey) just debuted a new feature that will take the community cue and allow readers to cover meetings, write articles and contribute photos and videos to the Clinton Hill and Fort Greene blog. They might even get some decent writing in there—these neighborhoods are the heart of the Brooklyn Literary 100, after all!

Last week, The Local published a post about "Be the Journalist."

Through this mechanism, you will ask us to cover things and we will do it. We will ask you to cover things on a regular basis and, we hope, you will do it. More and more important neighborhood things will get covered. The blog will grow. It will be beautiful.

Here is your first assignment: We’re looking for someone to go to the 88th Precinct Community Council meeting next Wednesday, the 10th.

Another post provided the date, time, location, and even outlined the issues of an upcoming community board meeting and asked readers to attend, on a volunteer basis.

"We’re looking for someone to go, take notes, take a photo and write up the festivities. Get exact quotes and names of the people you’re quoting. And send the results to us by early Thursday morning. We can explain the details and give you basic training."

Today, The Local is looking for users to submit "Yucky Weather Photos."

Certainly, The Times is catching on to "user engagement," not just on their Local blogs, but with features like TimesPeople. The Observer recently reported on a discussion with The Times' magazine writer and Wired columnist Clive Thompson on games and the news. He said newspapers should consider integrating gamelike “leaderboards” into their sites—giving the best commenters, bloggers and participants incentives, whether they be shoutouts or high rankings on the site. “You could regard The New York Times as its prime value is it’s a fantastic leaderboard, right?” Mr. Thompson said at the talk. “It is a great place to create variety and rewards for people.”

So what's the reward for The Local's community journalists who suffer through those community board meetings? They'll get their bylines on a NYTimes.com blog, which doesn't look too shabby on a résumé these days.

“If your local newspaper shuts down, what will take the place of its coverage? Perhaps a package of information about your neighborhood, or even your block, assembled by a computer,” the piece begins. “A number of Web start-up companies are creating so-called hyperlocal news sites that let people zoom in on what is happening closest to them, often without involving traditional journalists.”

Blogs like EveryBlock, Outside.in and Patch are starting up in small towns and doing news from the ground-up.

The story of hyperlocal blogs is a familiar one recently, particularly to people at The Times: They started their own, The Local, to cover three suburban towns in New Jersey and Fort Greene and Clinton Hill in Brooklyn.

And yet, in a story where The Times very much has a horse in the race, it did not include any disclosure about how it runs and operates The Local (though it did mention how it does have a relationship with one of the profiled blogs, EveryBlock).

Damon Darlin, the technology editor of The Times, told The Observer that the disclosure wasn’t necessary because this story is about fledgling blogs that didn’t have a journalistic parent to support it.

“The sites we talk about are bottom-up start-ups that use streams of government information and links to local blogs and news sources,” he said. “They are very different models than what The Times or the Seattle paper is doing.”

Mary Ann Giordano, the editor of The Local, said she was on vacation last week and didn’t know about the story.

The blogs were started at the end of February, with Times reporters encouraging locals to participate in it as much as possible. It's an experiment, and there's no business model, but The Times is hoping it can find its way to one with these blogs. In-house they have been calling the project "the microblogs."

“It’s not like we’re hiding the fact we have a hyperlocal blog,” said Mr. Darlin. “That’s pretty obvious for anyone who sees it. It wouldn’t have hurt to put another sentence in there, but it’s not like we’re playing hide the ball here because we publish it every day. This [story] was about things that people didn’t know about.”

Patch, the New York–based, hyperlocal start-up co-founded by Tim Armstrong, Google’s vice president of advertising sales AOL's new chair and chief executive, is expanding their coverage into three more New Jersey locations: Summit, Westfield  and Scotch Plains. 

On Feb. 6th, Patch launched three hyperlocal news sites in South Orange, Maplewood, and Millburn. Each individual site is an information portal—combining hard-nosed journalism from professional reporters, information from local government on everything from health department services to volunteer opportunities, and various platforms for user participation with pictures, stories and blogs. Patch’s chief executive and co-founder, Jon Brod, wrote in a statement:  “These are three towns with very involved residents, great businesses, strong governments, exceptional school systems and a real sense of community pride—in short, everything Patch is built to engage.”

Less than a month later, NYTimes.com announced the launch of The Local, community news and information Web sites for Clinton Hill and Fort Greene and Maplewood, Millburn and South Orange. In other words, Patch's territory.

After the launch, The Observer asked Patch’s chief executive office and co-founder what he thought of the competition. “We think it's great that one of the New York City newspapers is devoting some time to communities in New Jersey,” Mr. Brod emailed. “Of course, what distinguishes Patch from others is the comprehensiveness of our information—news, events, announcements, business listings, restaurants, volunteerism, and more—and that we hire professional journalists in each community we serve.” 

“We're coupling this original content with links to virtually every resource in town,” Mr. Brod added, “making Patch the best place for the community to get the news and information they need and want.”

For Patch, at least one editor is assigned to each town. Patch’s homequarters in Manhattan supply them with laptops, BlackBerrys and cameras. They have their own Twitter accounts and their feed is displayed in the upper-right-hand corner of the town’s news homesite. South Orange editor Cotton Delo, a 26-year-old Yale graduate, has her own profile on Patch, listing her hometown (South Orange) and experience (she has worked as a reporter at The Jersey Journal and as an editor at New York Resident magazine). Her profile also notes her political values (left-leaning), religion (raised Episcopalian but inherited some Catholic guilt) and what she thinks are important issues on her beat (taxes, for example). Communities having a personalized relationship with journalists is just part of the package, according to Mr. Brod.

The Local partnered with CUNY’s journalism program and recruited students to help editors, writers and local community members, add content to the sites. Yesterday, nymag.com's Daily Intel reported on Columbia J-school's alleged "existential crisis" that's causing the institution to revamp its digital curriculum. Maybe Patch can pick up a crop of new interns!

As for who really owns "local," that's for the users to decide.