Why Is The US Taxpayer Subsidizing Facebook – And The Next Bubble?

[Demeter]

http://baselinescenario.com/2011/01/06/why-is-the-us-taxpayer-subsidizing-facebook-%E2%80%93-and-the-next-bubble/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BaselineScenario+%28The+Baseline+Scenario%29

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 apparently launching a fund that will bring its own high net worth clients in as investors for Facebook.

On the face of it, this might just seem like the financial sector doing what it is supposed to – channeling funds into productive enterprise. The SEC is apparently looking at the way private investors will be involved, but there are some 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 (for the details, see Andrew Ross Sorkin’s blow-by-blow account in Too Big To Fail.) This means that it has essentially unfettered access to the Federal Reserve’s discount window, i.e., it can borrow against all kinds of assets in its portfolio, effective 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...

MORE SICKENING DETAIL AT LINK

[xchrom]

1. Sickening, indeed. Nt

[The_Commonist]

2. I really wish someone would/could develop...

...a site with Facebook's funcionality and Craigslist's ethos.
A not for profit Facebook would be amazing.

(yes, I realize that craigslist is for profit. it's just not about maximizing profit at the expense of the community)

I stopped using MySpace when it was bought by Rupert Murdoch.
I would like to stop using Facebook, but it has become too important a communication tool for me and so many people that I know.
I would dump it in a second if there were a viable alternative...

[Celebration]

3. I am handling this

By putting the article on my Facebook page, LOL!

[Celebration]

4. Okay, so I just put the link in the OP up on Facebook

I wish some other people would, too.

"Goldman Sachs should not be a too big to fail bank, with the ability to borrow from the Federal Reserve at 0% interest rates, only to turn around and make risky investments such as this. This is NOT capitalism, but "crony" capitalism and directly related to the corporate buyoff of politicians who have an unending need for campaign donations. They should either be a bank or a hedge fund, but certainly not both."

[Recursion]

5. Where do taxpayers come in here?

I thought you said it was backed by the Federal Reserve?

[Celebration]

6. the taxpayers

And citizens of the USA are required by law to only use FEDERAL RESERVE NOTES as currency. Therefore our store of wealth requires a stable Federal Reserve, and confidence in same. By lending money to institutions that take on undue risk, the Federal Reserve also takes on undue risk. What would happen if Goldman Sachs, as a hedge fund, was unable to pay back the Federal Reserves? The Fed would have to print more money, devaluing our currency.

Like it or not, the stability of our banking system is intimately tied to the Federal Reserve. No doubt if Goldman Sachs couldn't repay the Federal Reserve, there would be yet another TARP from our Treasury. The Fed already has a screwed up balance sheet.

[The_Commonist]

7. Actually, that's not quite accurate.

We are not required to ONLY use Federal Reserve Notes as currency.
There have been and are many alternative currencies over the years.
For example, here in Brooklyn there is a group that is creating a local currency, and it is perfectly legal:

http://brooklyntorch.org/

Of course, Federal Reserve Notes are pretty much the only game in town, and as you say, "...Like it or not, the stability of our banking system is intimately tied to the Federal Reserve."


http://en.wikipedia.org/wiki/Local_currency
http://en.wikipedia.org/wiki/Alternative_currency

[Celebration]

8. Barter is legal

As long as it doesn't threaten TPTB, barter type notes are left alone.

But as far as official "money" there is no alternative allowed. The Liberty Dollar folks have learned that.

But your correction/amplification is noted.

[DemReadingDU]

9. evening kick