9 ms·

Goldman’s Mutual Friend

75 points by robg 16y ago

Zak 16y ago
It bothers me that the sentiment of this article seems to be "this sort of transaction needs to be illegal" rather than "this isn't a good investment; don't invest".
- jbooth 16y ago
  I read the sentiment as "this sector is hopelessly corrupt", which, assuming they're not making stuff up, seems to be the case. Where'd you get to "should be illegal" from?
beoba 16y ago
"Goldman will be creating a “special purpose vehicle” to sell the stock to its wealthy clients and then will charge them a 4 percent initial fee plus 5 percent of any profits." hahaha what a shitty trade, sounds like standard goldman to me.
jackfoxy 16y ago
There's an engineering principle, if you address a complex problem (or any problem) with a complex system, it's going to be buggy. Addressing complex social issues with complex legislation (Dodd-Frank, Sarbox, etc.) results in loopholes (bugs). Many lawmakers surely realize this, but their main goal is re-election, and doing something (the equivalent of Dilbert moving his mouse around) gives the media something to report, which in turn keeps the lawmakers' names in front of the public and feeds the perception of positive action. The equivalent of engineers are the staff lawyers who actually write the legislation, and cycle between government and industry positions, much like contract programmers; but in their case they get rewarded for the bugs they write in their code by advising industry clients on how to exploit them. (That of course is a simplification. Goldman is using lawyers experienced in parsing complex security laws, not necessarily the same ones who wrote the laws.)
- anamax 16y ago
  > Many lawmakers surely realize this, but their main goal is re-election, and doing something (the equivalent of Dilbert moving his mouse around) gives the media something to report, which in turn keeps the lawmakers' names in front of the public and feeds the perception of positive action. You're assuming that they would "do good" if not for the pressures of re-election. How about some supporting evidence?
- newt 16y ago
  Buggy software can be better than none.
  - treeface 16y ago
    Sure, but it can also create bigger problems that didn't previously exist.
    - newt 16y ago
      Right, it could be either.
- jerf 16y ago
  "Many lawmakers surely realize this" I'm not sure. They're lawyers, not engineers, and I don't see any reason for lawyers to conclude "It's fundamentally complex, impossible to get right, and going to have problems" rather than "Well, they just didn't try hard enough to make a good law". And certainly the belief that they can create a solid law through sheer staggering complexity rather than despite sheer staggering complexity is a more parsimonious explanation of what has been happening lately than the idea that they know that simpler laws are better. There are few enough computer programmers who figure this out even with the math staring them in the face and great engineers all but spoonfeeding these tidbits of wisdom; I can't imagine this is anything like the common perception of law in lawmaker circles, and especially not in circles where people believe activist government is on average the solution to everything.
  - 16y ago
wccrawford 16y ago
Wait, isn't investing in something and then making a huge announcement like this called 'insider trading'? The same people who are investing are also purposefully changing the value of the stock through non-market means.
- T_S_ 16y ago
  Insider trading is a legal term, and is not always illegal. This issue is more about the election of public versus private status (another legal issue) and the rules about who can invest in various forms of private investment (yet another legal issue). It would be nice if we could ever get to discuss the economic issues of information and efficiency as it relates to investing, but the amount of heat around these issues these days prevents a lot of calculated reasoning about what is best for our economy.
IgorPartola 16y ago
So how can Facebook's IPO affect chumps like me who are not silly enough to try to buy either Goldman or Facebook stock? How likely is this to blow up on Wall Street? Or when the dust settles will it be just the "private wealth" investors that will have lost some of their fortunes?
- gus_massa 16y ago
  You will have to pay for it at the BailedOut 2.0. Is Goldman "too big to fall"? Is Facebook "too big to fall"??
- wmeredith 16y ago
  It looks like you weren't paying attention to the last time Wall Street blew up and tax payers footed the bill to the tune of hundreds of billions of dollars.
  - IgorPartola 16y ago
    Oh, I did. I was just wondering if others thought that a second bailout was a likely scenario.
yummyfajitas 16y ago
Wow, I've really got to hand it to Goldman. From the article: Thanks to Goldman’s imprimatur, Facebook’s value increased 20 percent virtually overnight....The other benefit for Goldman in leading the public offering — aside from major bragging rights — is that it can use its marketing, sales and distribution muscle to make sure the value of Facebook at the time of the offering exceeds the $50 billion valuation at which Goldman invested. Increasing the value of the firm they are investing in? Great job guys. While on paper it seems that these high rollers would be foolish to invest in Facebook at such a lofty valuation, they will still most certainly feel increased loyalty to Goldman for making such an exclusive opportunity available to them. Giving their other clients investment opportunities not available elsewhere? Awesome. Wish I were Goldman's client. (Note: all of Goldman's clients are accredited or institutional investors, and are fully capable of making their own decisions on whether to buy this Facebook SIV.) Further, if the value at IPO will be at least $52B ($50B + 4%) (as an earlier paragraph suggests it might), all the clients who purchase this SIV will at least break even. Overall, it looks like Goldman is doing a great job for all their clients. Keep up the good work guys. Also, the conflict of interest is nonexistent. Goldman holds a long position in Facebook. So do all their clients. Everyone has the same goal here: increase the value of Facebook. As for the "average investors" who the article claims will be hurt by all this, there is a very simple way to avoid that: don't buy FB. If everyone does this, the IPO will be a failure, and Goldman + Zuckerberg + Goldman's clients will all lose money. If you are very sure FB is overvalued, short it. If you are right you will be taking money from Goldman and Zuckerberg.
- IgorPartola 16y ago
  One correction: Goldman did not increase the value of Facebook, just the appearance of their value. Who knows how much Facebook is actually worth? Their profits are tiny compared to the latest valuation. They are up to their ears in invested money. Their business model is showing ads that nobody clicks on. Goldman and the private investors might make out all right. But their recent investment has done little in my eyes to make Facebook more valuable.
  - endtime 16y ago
maxklein 16y ago
I believe facebook shares will be the biggest share rise ever in history. You know why? Because it will run across facebook virally. Anyone who makes money on facebook stocks will announce it to his 450 friends, and so on. The facebook IPO will be huge.
shawnee_ 16y ago
First, Goldman’s cost of capital is close to zero as a bank holding company, it can borrow from the Federal Reserve at negligible interest rates so any capital gain it makes on its venture in Facebook will be sheer profit. And here we have a very interesting data point reminiscent of an era preceding a previous .com valuation implosion. Does not compute. Weighted Average Cost of Capital (WACC) is one of the most important metrics for determining a value of a company. This free capital is equivalent to giving Goldman Sachs preferred stock in a pre-IPO. If Goldman-Sachs is given unrestrained liberty to not only determine the "market value" of the company AND the "insider's trading" right to determine the value of individual shares, we have most of the ingredients for another recipe for disaster.
chailatte 16y ago
The good news: it's the last bubble. The bad news: it's the last bubble. The ugly news: massive failures across startups, high unemployment for programmers, dried up funding for years to come.
kragen 16y ago
I see a lot of people crying "bubble". By my calculations, it doesn't look like a bubble price; it looks like a relatively conservative price, one incorporating a substantial risk that Facebook will collapse. I posted them at http://news.ycombinator.com/item?id=2062222 http://news.ycombinator.com/item?id=2062222 a couple of days ago. My calculations could, of course, be wrong. But I'd like to see comparable calculations from the "it's a bubble" crowd, instead of just sneers at the idea that Facebook could really be more valuable than Time Warner, Du Pont, and Morgan Stanley. To me, of course Facebook is more valuable than Time Warner. It already intermediates the friendships and owns the private information of almost 10% of the world's population, including nearly its entire upper class, and it's an unregulated monopoly. The question is only how much more valuable.
waterlesscloud 16y ago
Everyone seems to ignore Facebook Credits as a revenue source. That market is still in the very early stages of development, but it doesn't take a lot of imagination to see some very profitable directions for it to go. In the short run, how much is FB extracting from Zynga alone with the Credits scheme?
mhb 16y ago
So buy Goldman and short Facebook. Since shorting Facebook can't be done, maybe Goldman can create a derivative to facilitate it.
deleted 16y ago
[deleted]

75 points by robg 16y ago

Zak 16y ago

It bothers me that the sentiment of this article seems to be "this sort of transaction needs to be illegal" rather than "this isn't a good investment; don't invest".

jbooth 16y ago
I read the sentiment as "this sector is hopelessly corrupt", which, assuming they're not making stuff up, seems to be the case. Where'd you get to "should be illegal" from?

beoba 16y ago

"Goldman will be creating a “special purpose vehicle” to sell the stock to its wealthy clients and then will charge them a 4 percent initial fee plus 5 percent of any profits." hahaha what a shitty trade, sounds like standard goldman to me.

jackfoxy 16y ago

There's an engineering principle, if you address a complex problem (or any problem) with a complex system, it's going to be buggy. Addressing complex social issues with complex legislation (Dodd-Frank, Sarbox, etc.) results in loopholes (bugs). Many lawmakers surely realize this, but their main goal is re-election, and doing something (the equivalent of Dilbert moving his mouse around) gives the media something to report, which in turn keeps the lawmakers' names in front of the public and feeds the perception of positive action. The equivalent of engineers are the staff lawyers who actually write the legislation, and cycle between government and industry positions, much like contract programmers; but in their case they get rewarded for the bugs they write in their code by advising industry clients on how to exploit them. (That of course is a simplification. Goldman is using lawyers experienced in parsing complex security laws, not necessarily the same ones who wrote the laws.)

anamax 16y ago
> Many lawmakers surely realize this, but their main goal is re-election, and doing something (the equivalent of Dilbert moving his mouse around) gives the media something to report, which in turn keeps the lawmakers' names in front of the public and feeds the perception of positive action. You're assuming that they would "do good" if not for the pressures of re-election. How about some supporting evidence?
newt 16y ago
Buggy software can be better than none.
- treeface 16y ago
  Sure, but it can also create bigger problems that didn't previously exist.
  - newt 16y ago
    Right, it could be either.
jerf 16y ago
"Many lawmakers surely realize this" I'm not sure. They're lawyers, not engineers, and I don't see any reason for lawyers to conclude "It's fundamentally complex, impossible to get right, and going to have problems" rather than "Well, they just didn't try hard enough to make a good law". And certainly the belief that they can create a solid law through sheer staggering complexity rather than despite sheer staggering complexity is a more parsimonious explanation of what has been happening lately than the idea that they know that simpler laws are better. There are few enough computer programmers who figure this out even with the math staring them in the face and great engineers all but spoonfeeding these tidbits of wisdom; I can't imagine this is anything like the common perception of law in lawmaker circles, and especially not in circles where people believe activist government is on average the solution to everything.
- 16y ago

wccrawford 16y ago

Wait, isn't investing in something and then making a huge announcement like this called 'insider trading'? The same people who are investing are also purposefully changing the value of the stock through non-market means.

T_S_ 16y ago
Insider trading is a legal term, and is not always illegal. This issue is more about the election of public versus private status (another legal issue) and the rules about who can invest in various forms of private investment (yet another legal issue). It would be nice if we could ever get to discuss the economic issues of information and efficiency as it relates to investing, but the amount of heat around these issues these days prevents a lot of calculated reasoning about what is best for our economy.

IgorPartola 16y ago

So how can Facebook's IPO affect chumps like me who are not silly enough to try to buy either Goldman or Facebook stock? How likely is this to blow up on Wall Street? Or when the dust settles will it be just the "private wealth" investors that will have lost some of their fortunes?

gus_massa 16y ago
You will have to pay for it at the BailedOut 2.0. Is Goldman "too big to fall"? Is Facebook "too big to fall"??
wmeredith 16y ago
It looks like you weren't paying attention to the last time Wall Street blew up and tax payers footed the bill to the tune of hundreds of billions of dollars.
- IgorPartola 16y ago
  Oh, I did. I was just wondering if others thought that a second bailout was a likely scenario.

yummyfajitas 16y ago

Wow, I've really got to hand it to Goldman. From the article: Thanks to Goldman’s imprimatur, Facebook’s value increased 20 percent virtually overnight....The other benefit for Goldman in leading the public offering — aside from major bragging rights — is that it can use its marketing, sales and distribution muscle to make sure the value of Facebook at the time of the offering exceeds the $50 billion valuation at which Goldman invested. Increasing the value of the firm they are investing in? Great job guys. While on paper it seems that these high rollers would be foolish to invest in Facebook at such a lofty valuation, they will still most certainly feel increased loyalty to Goldman for making such an exclusive opportunity available to them. Giving their other clients investment opportunities not available elsewhere? Awesome. Wish I were Goldman's client. (Note: all of Goldman's clients are accredited or institutional investors, and are fully capable of making their own decisions on whether to buy this Facebook SIV.) Further, if the value at IPO will be at least $52B ($50B + 4%) (as an earlier paragraph suggests it might), all the clients who purchase this SIV will at least break even. Overall, it looks like Goldman is doing a great job for all their clients. Keep up the good work guys. Also, the conflict of interest is nonexistent. Goldman holds a long position in Facebook. So do all their clients. Everyone has the same goal here: increase the value of Facebook. As for the "average investors" who the article claims will be hurt by all this, there is a very simple way to avoid that: don't buy FB. If everyone does this, the IPO will be a failure, and Goldman + Zuckerberg + Goldman's clients will all lose money. If you are very sure FB is overvalued, short it. If you are right you will be taking money from Goldman and Zuckerberg.

IgorPartola 16y ago
One correction: Goldman did not increase the value of Facebook, just the appearance of their value. Who knows how much Facebook is actually worth? Their profits are tiny compared to the latest valuation. They are up to their ears in invested money. Their business model is showing ads that nobody clicks on. Goldman and the private investors might make out all right. But their recent investment has done little in my eyes to make Facebook more valuable.
- endtime 16y ago

maxklein 16y ago

I believe facebook shares will be the biggest share rise ever in history. You know why? Because it will run across facebook virally. Anyone who makes money on facebook stocks will announce it to his 450 friends, and so on. The facebook IPO will be huge.

shawnee_ 16y ago

First, Goldman’s cost of capital is close to zero as a bank holding company, it can borrow from the Federal Reserve at negligible interest rates so any capital gain it makes on its venture in Facebook will be sheer profit. And here we have a very interesting data point reminiscent of an era preceding a previous .com valuation implosion. Does not compute. Weighted Average Cost of Capital (WACC) is one of the most important metrics for determining a value of a company. This free capital is equivalent to giving Goldman Sachs preferred stock in a pre-IPO. If Goldman-Sachs is given unrestrained liberty to not only determine the "market value" of the company AND the "insider's trading" right to determine the value of individual shares, we have most of the ingredients for another recipe for disaster.

chailatte 16y ago

The good news: it's the last bubble. The bad news: it's the last bubble. The ugly news: massive failures across startups, high unemployment for programmers, dried up funding for years to come.

kragen 16y ago

I see a lot of people crying "bubble". By my calculations, it doesn't look like a bubble price; it looks like a relatively conservative price, one incorporating a substantial risk that Facebook will collapse. I posted them at http://news.ycombinator.com/item?id=2062222 http://news.ycombinator.com/item?id=2062222 a couple of days ago. My calculations could, of course, be wrong. But I'd like to see comparable calculations from the "it's a bubble" crowd, instead of just sneers at the idea that Facebook could really be more valuable than Time Warner, Du Pont, and Morgan Stanley. To me, of course Facebook is more valuable than Time Warner. It already intermediates the friendships and owns the private information of almost 10% of the world's population, including nearly its entire upper class, and it's an unregulated monopoly. The question is only how much more valuable.

waterlesscloud 16y ago

Everyone seems to ignore Facebook Credits as a revenue source. That market is still in the very early stages of development, but it doesn't take a lot of imagination to see some very profitable directions for it to go. In the short run, how much is FB extracting from Zynga alone with the Credits scheme?

mhb 16y ago

So buy Goldman and short Facebook. Since shorting Facebook can't be done, maybe Goldman can create a derivative to facilitate it.

deleted 16y ago

[deleted]