There's an article in today's New York Times that just about set my hair on fire.
Concise explanations of complicated wheeling and dealing make this a must read. It translates this latest news of Goldman Sachs investing $450 Million dollars in Facebook, valuing the company at $50 BILLION dollars.
New York Times article <--read here
William Cohan describes this as having "a front row seat to the process by which Wall Street creates and initiates financial bubbles."
All of the social networking companies are soaring in valuation, reminding us all too soon of the Internet bubble fiasco of 1999.
The gist of it is that when Facebook goes public, Goldman and other underwriters take fees of at least $140 million. And Goldman can use its muscle to make sure that the value of Facebook at time of offering exceeds the $50 Billion valuation at which it invested. Apparently there's also a deal that Goldman can offer 1.5 Billion of the company stock to its private-wealth clients, and then charge them a special 4% fee, PLUS 5% of any profits they make. (!!)
All of this adds up to the kind of backroom dealings that have made Goldman a target for reform in the past and likely so in the future. But they know how to work the system, using taxpayer money (borrowed) at near zero interest to perpetuate their deals for the rich. Is it any wonder that the rich get richer and the middle class of America is disappearing? Nothing has changed, Mr. Obama.
I recently deactivated my Facebook account (long before Goldman Sachs showed up with their offer). I am happy about that. If I get involved at all in this madness, it will be with the only means I have to partake in this get rich scheme and that is by buying some Goldman Sachs stocks or options, take profits and get out quick before the bubble bursts! Mind you, this will be a penny in the cup compared to what the real investors will be gleaning.