Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?

Post by chopsueyar » Thu, Jan 06, 2011, 5:40 PM UTC

spinlock wrote: post #20

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 eq…

Post by [deleted] » Thu, Jan 06, 2011, 6:04 PM UTC

mayank wrote: post #32

bwanab wrote: post #23

All posters, except thrill, seem to have fundamentally misread the article. It isn't about Facebook or GS for that matter. Its concern is that several banks including GS have a "too big to fail" subsidy. That subsidy is an implied insurance against failure. Let's say you are GS management and you have two possible investment choices: 1) A safe boring sure thing financed with little leverage that will bring in somewhe…

I would argue that the consolidation of (fiscal) power into a few large centralized institutions can be a natural outcome of capitalism, since an increase in the size of an institution (either through growth or acquisition) can offer more profit opportunities. Now if you view a corporation through the traditional lens of being sociopathically focused on profits, then it is natural for it to seek a position where its…

Post by 3pt14159 » Thu, Jan 06, 2011, 8:34 PM UTC

spinlock wrote: post #17

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.