jjprojects: our social web

I’ve wondered when this day would come. The start of a new decade is a fitting time I suppose. New decade. New blood.

On reading the news that Goldman Sachs has led a huge new investment in Facebook, I couldn’t help but recall with some amusement Matt Taibbi’s Rolling Stone article The Great American Bubble Machine, from April last year.

This rollicking take-down investigates how Goldman Sachs has helped engineer every major market manipulation since the Great Depression, including the tech stock bubble of the 1990s, the “housing craze” that lead to the global financial meltdown, the $4 a gallon petrol (or gas in American) bubble, and rigging the financial crisis bailout. The world’s most powerful investment bank is harshly described as:

a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

Can you see why, after recalling this article, I seem to have this mental image of a vampire squid wrapped around a big, blue ‘F’?

Goldman Sachs seems to have been just about everywhere within capitalism, including  ‘dot com’, ‘web 1.0′ IPOs leading up to the tech wreck, and now, it’s into ‘web 2.0′, social media.

With that in mind, here’s another harsh evaluation of the bank’s (and government’s) long history from said vampire squid article:

The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again

If you agree to any degree with this assessment, does that mean social media is about to be subjected to this? If you don’t, it’s all fine and dandy. I guess we’ll just have to wait and see what happens. I’ll reserve my judgment for later, because I’m not as cynical as you lot.

Any any case, let’s take a quick look at what has just happened with the Goldman Sachs/Facebook deal.

1. Facebook has just raised $475 million from Goldman Sachs.
2. In addition, the company intends to raise another $1.5 billion through a “special purpose vehicle” that Goldman Sachs will be initiating, to let its clients indirectly invest in Facebook.
3. The private sales would value Facebook at around $50 billion.
4. The minimum investment from clients is expected to be about $2 million.
5. Goldman’s offering of Facebook shares will surely be watched closely on Wall Street, as it could set an example for other private companies (who don’t wish to go public but still raise a lot of money) to do a similar thing.
6. A potential investor has said that Goldman is taking about 4.5 percent fee from the money invested into the fund.
7. By using Goldman’s “special purpose vehicle“, Facebook will avoid having its financial information disclosed to the SEC and published publicly. Its competitors won’t know the details of its earnings.
8. Using the “special vehicle”, Facebook still gets around $2 billion to use, without going over the 500 shareholder limit for disclosure, by having Goldman Sachs represent the investors on their behalf. Did someone say loophole?
9. The SEC may intervene and rule that the “special purpose vehicle” circumvents the Securities Exchange Act and require Facebook to then report its earnings.
10. It so happens that the SEC just last month began an inquiry into the surge of trading shares of privately held Internet companies.
11. As Mashable points out, if Facebook is required to eventually report it’s earnings, why would it not then just go for an IPO, after of course growing quite a lot more in the meantime?
12. Goldman Sachs is in the prime position to lead the lucrative IPO, whenever that occurs. Big fees.
13. As Dealbook points out, an eventual IPO would also unlock CEO Mark Zuckerberg’s huge paper wealth, which Goldman Sachs, as a lead Facebook investor, would have a “leg up” in the assignment of managing post IPO.
14. No doubt Twitter and other social media companies, and their investors, will be watching this whole developing situation with interest.