about business / Finance / New Media

The American System of Greed: How the smart and greedy take advantage of the greedy who take advantage of the dumb and greedy


I have posted several times regarding my negative views of the financial value of Facebook.  As you may know, Goldman Sachs put together a “fund” to invest $500 in Facebook at a valuation of 50 billion.  This structure lets Facebook get around the requirements of going public by having more than 500 investors.  Goldman is well know for having creative ways to get around regulations.  Just look at how they helped Greece hide much of their debt.  But the deal also lets Goldman get even more money then they would get if they just sold stock.  They are getting a 4.5% placement payment, a 4% carried interest (they get 4% of any gain in Facebook stock over the 50  billion dollars) and they get a 1.5% a year management fee.  Now who did they sell the stock to?  To a bunch of greedy people who do not really care what Facebook is worth but think that there are greedy and  stupid people that will buy Facebook at the IPO for 100 billion dollars.  There are probably terms that will allow the Goldman investors to sell into the IPO or soon after or Goldman will find away to lock in their gains (and Goldman 4% carry interest). Then all the people that have Facebook at low valuations will start dumping their stock.  That will not hurt Goldman who will have probably sold Facebook short.  I have seen this movie before.  It will be ugly.

2 thoughts on “The American System of Greed: How the smart and greedy take advantage of the greedy who take advantage of the dumb and greedy

  1. An outstanding share! I have just forwarded this onto a friend who has been doing a little homework on this.
    And he in fact bought me lunch due to the fact that I stumbled
    upon it for him… lol. So allow me to reword this.
    … Thanks for the meal!! But yeah, thanks for spending the time to discuss this topic
    here on your site.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s