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Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?

economix.blogs.nytimes.com

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Re: Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?

#11

Post by jackfoxy »

grav1tas wrote: post #10
thrill wrote: post #7

Earlier quoted context omitted.

GS (and other favored companies) doesn't need to actually borrow - they gain advantage by having access as needed to 'government money', better defined as coercively (you know - prison if you don't give it) acquired taxpayer money. Merely having that access is the advantage - they can take greater risks - and reap greater rewards - than others because of it.

Laissez-faire capitalism at work! No really, can somebody explain why institutions like this are allowed to have such advantages over their competition? This seems like it would be an easy political target FROM ALL SIDES of the aisle. "Big government" messes with the "free market" and the "rich get richer". ::EDIT:: Since I can't respond to my sub comments at this point, the first sentence, is, in fact, sarcasm.

This is not laissez-faire capitalism. This is state/private sector cronyism capitalism.

Re: Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?

#12

Post by jonnathanson »

This editorial is a not-entirely-successful attempt to conflate two different topics of discussion: FB's valuation (and Goldman's market-making involvement therein), and the dangers of leverage in the financial sector.

It's quite likely that Goldman would have made this play with FB regardless of its current special access to federal dollars, thus making the two topics incidentally and not fundamentally related.

Re: Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?

#13

Post by ximeng »

kragen wrote: post #8

Even if Facebook's valuation isn't a bubble valuation (as I've argued previously) it is certainly the case that money lent at excessively low interest rates will create bubble valuations. What can you do about it? You could stop accepting dollars, I suppose.

Buy gold:

http://www.kitco.com/charts/popup/au1825nyb.html

Re: Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?

#14

Post by yummyfajitas »

grav1tas wrote: post #10
thrill wrote: post #7

Earlier quoted context omitted.

GS (and other favored companies) doesn't need to actually borrow - they gain advantage by having access as needed to 'government money', better defined as coercively (you know - prison if you don't give it) acquired taxpayer money. Merely having that access is the advantage - they can take greater risks - and reap greater rewards - than others because of it.

Laissez-faire capitalism at work! No really, can somebody explain why institutions like this are allowed to have such advantages over their competition? This seems like it would be an easy political target FROM ALL SIDES of the aisle. "Big government" messes with the "free market" and the "rich get richer". ::EDIT:: Since I can't respond to my sub comments at this point, the first sentence, is, in fact, sarcasm.

Laissez-faire capitalism at work!

No. Please use wikipedia to look up unfamiliar terms before using them in a sentence.

http://en.wikipedia.org/wiki/Laissez-faire

[edit: my apologies. Didn't detect the sarcasm.]

Re: Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?

#15

Post by yummyfajitas »

jonnathanson wrote: post #12

This editorial is a not-entirely-successful attempt to conflate two different topics of discussion: FB's valuation (and Goldman's market-making involvement therein), and the dangers of leverage in the financial sector. It's quite likely that Goldman would have made this play with FB regardless of its current special access to federal dollars, thus making the two topics incidentally and not fundamentally related.

Indeed. The last hit piece the NYT ran on this topic explains why: this deal is likely to make Goldman, Facebook, and all the investors who buy into Goldman's SIV a lot of money.

http://opinionator.blogs.nytimes.com/2011/01/04/friends-with...

Also, this deal is peripherally related to bailouts at best. Goldman will not require a bailout even if they lose their entire $500 million investment (i.e., if Facebook goes bankrupt tomorrow, which is exceedingly unlikely) - Goldman has a market cap of $90 billion.

Re: Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?

#16

Post by [deleted] »

yummyfajitas wrote: post #14
grav1tas wrote: post #10

Earlier quoted context omitted.

Laissez-faire capitalism at work! No really, can somebody explain why institutions like this are allowed to have such advantages over their competition? This seems like it would be an easy political target FROM ALL SIDES of the aisle. "Big government" messes with the "free market" and the "rich get richer". ::EDIT:: Since I can't respond to my sub comments at this point, the first sentence, is, in fact, sarcasm.

Laissez-faire capitalism at work! No. Please use wikipedia to look up unfamiliar terms before using them in a sentence. http://en.wikipedia.org/wiki/Laissez-faire [edit: my apologies. Didn't detect the sarcasm.]

[deleted]

Re: Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?

#17

Post by spinlock »

3pt14159 wrote: post #9

Short version: Anything Goldman invests in is being subsidized, so Facebook is being subsidized. Yawn

Accurate version: Goldman finances its operations through debt rather than equity because of it's explicit federal backing. The risk capital it is investing in Facebook is therefor debt rather than equity. Facebook is so hot right now that it is probably overvalued. This leads to a debt bubble - rather than an equity bubble - which is much more painful for the economy.

Re: Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?

#18

Post by grav1tas »

jackfoxy wrote: post #11
grav1tas wrote: post #10

Earlier quoted context omitted.

Laissez-faire capitalism at work! No really, can somebody explain why institutions like this are allowed to have such advantages over their competition? This seems like it would be an easy political target FROM ALL SIDES of the aisle. "Big government" messes with the "free market" and the "rich get richer". ::EDIT:: Since I can't respond to my sub comments at this point, the first sentence, is, in fact, sarcasm.

This is not laissez-faire capitalism . This is state/private sector cronyism capitalism .

Yes, that was my point and I wasn't being serious with the first sentence. Sorry if my sarcasm was too straight-faced.

Re: Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?

#19

Post by grav1tas »

yummyfajitas wrote: post #14
grav1tas wrote: post #10

Earlier quoted context omitted.

Laissez-faire capitalism at work! No really, can somebody explain why institutions like this are allowed to have such advantages over their competition? This seems like it would be an easy political target FROM ALL SIDES of the aisle. "Big government" messes with the "free market" and the "rich get richer". ::EDIT:: Since I can't respond to my sub comments at this point, the first sentence, is, in fact, sarcasm.

Laissez-faire capitalism at work! No. Please use wikipedia to look up unfamiliar terms before using them in a sentence. http://en.wikipedia.org/wiki/Laissez-faire [edit: my apologies. Didn't detect the sarcasm.]

My first sentence was sarcasm. I indeed did look it up to verify its meaning and to determine that it was what I wanted to say, even though the term was not unfamiliar to me.

Re: Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?

#20

Post by spinlock »

jonnathanson wrote: post #12

This editorial is a not-entirely-successful attempt to conflate two different topics of discussion: FB's valuation (and Goldman's market-making involvement therein), and the dangers of leverage in the financial sector. It's quite likely that Goldman would have made this play with FB regardless of its current special access to federal dollars, thus making the two topics incidentally and not fundamentally related.

I would say that it is very likely Goldman would have made this play regardless of it's federal guarantees. The difference - and the author's point - is that there is less systemic risk in this scenario because Goldman would get the $450M through the equity markets rather than through the debt markets.

The author's point is that we have created a system where risk capital is being financed through debt rather than equity.

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