$50 Billion Facebook?

http://www.economist.com/node/17853336?story_id=17853336&fsrc=nwl

Is Facebook Really Worth $50 billion?

Thank you, Economist, for emphasizing the octopi suction cups characteristic of Goldman Sachs. May I ask why a national bank is permitted to make these investments when they have depositors’ money guaranteed by the US Government’s FDIC?


When I worked on Wall Street, the whizziest of the Whiz Kids were the ones who could figure out how to circumvent regulations that prevented a desired transaction. I remember the NYSE “fully distributed” rule that was the last impediment to a “recapitalization” so in vogue then. The discussion of this problem was so amusing…. we stood around and spoke like the gods on Mt. Olympus, observing that being listed on the NYSE was overrated. Another was a “Section 521 Note Monetization” which was an invention (effective but short-lived) designed to circumvent paying capital gains taxes when divesting low-basis subsidiaries.

The point is that there is no regulator, all of whom make less than $500,000 per year, that can stay one step ahead of the parasites on Wall Street who exist to design transactions that circumvent regulations. No doubt, they are bright boys there at Goldman Sachs. No doubt, Govco cannot compete for the talent Goldman hires out of Stanford, Cal Tech, and MIT.

My thesis: the ONLY way to regulate Wall Street is to require investment banks to be private partnerships funded with the partners’ capital. Otherwise, they are on opium (OPM – other people’s money) and they have no incentive to take prudent risks, especially now that they are too big to fail.

Even if Goldman reverts to a private partnership, take note of their disproportionate influence in halls of government: Hank Paulsen, AIG bailout proceeds, slap-on-the-wrist fines, just to mention a few. Of this, you can be sure: there will be no exposé on Goldman Sachs, not from Hollywood, not from print media, not from blogs, not the SEC, and not the Federal Reserve. The Rolling Stone article and The Big Short merely scratched the surface of the real story. There is no one out there smart enough to get the story AND remain safe from the octopi suction cups. Of those powerful enough to get the story, they are in Goldman’s back pocket.

People used to worry about the military-industrial complex. At least those actors were visible to the press. The average voter has no idea of who Goldman is, and even the educated voters are easily conned by their sophistry. Goldman Sachs is more entrenched than kudzu.