"Goldman's Facebook Deal is worse than Toxic Mortgages"

[denem]

A summary of Goldman's Shady Facebook Deal
by Nomi Prins of the Daily Beast

Goldman Sachs is raising $500 billion for Facebook in $2m lots to exclusive investors. The pay off? : Getting in on the ground floor of Facebook's planned Stock offering in 2012. The catch? : You cant sell until 2013 and Goldman takes 10% on a shimmering investment you know little about.

... here's the deal in a nutshell: You get to buy shares, forking over 5 percent of any possible gains, on top of a 4 percent placement fee and a 0.5 percent expense reserve fee (so you're down 10 percent before the game starts) in a private company that doesn't have to disclose any pertinent financial information to you or any regulator for 15 months. For the privilege, Goldman gets its eight-digit windfall.

Goldman of course got in at the bargain basement, not the ground floor.

Goldman again moved aggressively to get the business—investing $75 million into Facebook early, at a low valuation, through one of its hedge funds, in the same way it used to get CDOs rolling—again will rake in the fees (to the tune of $60 million—upfront) and again will pawn off the overvalued results to its clamoring clients, who don't have nearly as much information as Goldman.

It's the CDO scam all over again : CDOs were private, unregulated, overvalued, disclosure-lite, fee-intensive deals. The Facebook deal is private, unregulated, overvalued, disclosure-lite, and fee intensive. CDOs sold like mad— until they didn't.

But with Facebook, Goldman has gone one step further. A barbed wired Chinese wall. Without exception, the $2m stakes can not be sold until 2013. Well, one exception: Goldman Sachs itself.

To avoid another uncomfortable SEC incident, and the nuisance of public scrutiny, they've put the sell possibility right out front: a disclaimer allowing them to dump their shares, or perhaps short them, at any point. Which is extra convenient, since Goldman is privy to far more information about Facebook than the people they would sell them to: insider trading in the public markets—upfront and legal here.

Legal Insider Trading in the public markets, upfront, beyond the reach of the SEC, public scrutiny and disclosure obligations? That's the newly re-regulated financial markets for you. If they say they can rob you blind, they can do so at will, skimming at every twist and turn.

The Facebook stakes were such a good deal that one of Goldman's own funds didn't want a bar of them. But ultimately, no matter how profitable Facebook turns out, the wild west wall street stallions gallop on and the cattle are brought to market.

Read More: In the Daily Beast.
http://www.thedailybeast.com/blogs-and-stories/2011-01-07/goldmans-facebook-voodoo-why-its-social-media-deal-is-worse-than-toxic-mortgages/2/

[still_one]

1. It isn't worse then the fraud that was perpetrated with the swaps and other "new" instruments.

The CDO's were sold on false pretense without the assets to back them up

Anyone who buys into this thinking there is no risk, deserves to lose

[denem]

2. AS the author said : The Facebook deal is private, unregulated, overvalued,

disclosure-lite, and fee intensive. The holder bears the risk, including that of collapse.

An asset is what the market will pay for it.

[Statistical]

5. "An asset is what the market will pay for it."

Exactly and reason CDO sold is they were stamped AAA by credit agencies. Facebook has no AAA rating. It is private company with no liquidity. By definition that means it is speculative. Also the offer is limited to qualified investors which usually means $5 mil + in liquid assets and $10-$20M+ in net worth.

It hardly the same to compare

CDO, rated AAA sold to retail investors, pension funds, and governments

to

Private Equity offering with no credit rating sold as speculative offering to ultra high net worth individuals.

[PoliticAverse]

3. "Worse than toxic mortgages"? No. n/t

[Statistical]

4. Hardly.

Mortgage CDO were sold as AAA to retail investors. Facebook has no such credit rating and is sold to sophisticated investors. Min liquid net-worth is $5 mill. I really don't care if one ultra rich company overprices some shares to another ultra rich investor. No more than I care if one shark in the ocean eats another one.

[Erose999]

6. Might be boycotting FB soon. Goldman sucks.