Goldman Sachs, the world’s largest financial services company, and Facebook, the world’s largest social networking company, have something in common, other than Goldman partially owning Facebook, too: They are privately owned. And they will stay that way. While Goldman and Facebook stay away from an IPO, they:
Don’t have to report earnings in-depth to the SEC like public companies do.
They have less responsibly to shareholders
And they can become as large (by merging and acquiring other companies) as they want to be.
So, that’s a sweet deal in a free market… to be free to pretty much do whatever you want. Goldman likes Facebook because, if they can get the data that they partially own now (Goldman is paying $2 Billion for circa 4% ownership– $450 mil of which is their own cash)… They can use that data in their arbitrage unit.
Goldman’s arbitrage unit looks for patterns and trends in the media and markets to make predictions about value, so Goldman knows how much to bet on what.
Every security that Goldman creates (like CDOs and CLOs which are a bunch of mortgages and loans that the borrowers will hopefully repay alot-of-fold with interest in the future), can be sold by Goldman to their clients and partners based on how much they will be worth in the future… this is the very core of securities trading in general… However, if Goldman creates securities around funds that are completely run by arbitrage software that use Facebook’s social data, they will be able to sell these for alot more than they bought pieces of Facebook for, because they will be making HUGE amounts of money, because Facebook’s social data will be seen as somewhat of a crystal ball. Facebook’s data will act as a chrystal ball because it literally tracks the thoughts, movements, opinions, and private communications of almost everyone who is relevant in this free market (500 million+ somewhat savvy people with computers).
So, Goldman is benefiting because they will be able to create new funds and enhance older funds around Facebook’s crystal ball…
The problem is that if Facebook’s chystal ball isn’t working so well, then those billion-dollar funds will begin to lose money… It’s at these times when things get ugly… Because, at that point, Goldman will either demand more data (like your private facebook e-mails) as an investor… And if they don’t recieve it, then they have the financial and political power and influence to do an in-house takeover of Facebook.
Now, Mark Zuckerberg, the CEO of Facebook, is pretty smart… He got half a billion people to use his site daily.. even hourly. He also created a new way of moving money around amongst consumers and retailers… He reads Ender’s Game, and he has 7 years experience leading a successful start-up… Even knew to get ex-Washington brass, Sheryl Sandberg, to join his team. He poached some Google engineers…. He survived the Social Network movie in style. He knows a bit of financial engineering, as he’s raised the market cap of FB to $50 billion. Additionally, the guy knows how to get a write-off by donating $100 million to Newark public schools…
He’s pretty much king of the web venture world.
However, the finance world is different from the venture world in that it’s a zero-sum game. Someone always wins, and someone always loses. If Goldman makes these securities around Facebook’s data, one of two things could happen:
Goldman’s funds skyrocket, and then their investors resell those securities at HUGE premiums. The problem with HUGE premiums is that they lead to a bubble, becuase people historically get too excited when something is going right, and then the bubble will burst… All the new businesses started with that money will then go under.
Goldman’s funds don’t skyrocket, and then investors demand Goldman does something to turn things around. Goldman does, and takes over Facebook, either via a lawsuit, anti-trust flap, or a crafted intellectual property issue, and then all the little privacy that was on Facebook will drive high-powered financial instruments trading.. With all of that data out there, something stupid will happen because someone will know something they’re not supposed to…
But this is JUST a prediction, and it will take the course of a few years before any resolve is reached.
What do you think?