Thursday, January 6, 2011

"Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?" (GS)

With the banks having basically written the Dodd-Frank reform bill (I mean look at the sponsors, those guys are corruption personified) it appears that the citizenry will be ready for a modified Cloward-Piven strategy, directed this time at the banks rather than the government.*
And if that doesn't work I shall go long torches and pitchforks.
From Economix:
Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”
Goldman Sachs is investing $450 million of its own money in Facebook, at a valuation that implies the social-networking company is now worth $50 billion. Goldman is also creating a fund that will offer its high-net-worth clients an opportunity to invest in Facebook.

On the face of it, this might seem just like what the financial sector is supposed to be doing – channeling money into productive enterprise. The Securities and Exchange Commission is reportedly looking at the way private investors will be involved, but there are more deeply unsettling factors at work here.

Remember that Goldman Sachs is now a bank-holding company – a status it received in September 2008, at the height of the financial crisis, in order to avoid collapse (see Andrew Ross Sorkin’s blow-by-blow account in “Too Big to Fail” for the details.)

This means that it has essentially unfettered access to the Federal Reserve’s discount window – that is, it can borrow against all kinds of assets in its portfolio, effectively ensuring it has government-provided liquidity at any time.

Any financial institution with such access to such government support is likely to take on excessive risk – this is the heart of what is commonly referred to as the problem of “moral hazard.” If you are fully insured against adverse events, you will be less careful....MUCH MORE
HT: another NYT property, DealBook
* Sheeeee's baaaack.