C&L Opening Bell: More on the SquidBook Deal
enlarge So it looks as though Facebook plans to go public sometime next year, thus rendering irrelevant any questions about whether it can have Goldman sell its shares to other investors and still remain a private entity. On the other hand, as William Cohan notes in his New York Times column, Goldman’s investment in Facebook certainly seems to be a violation of the ” Volcker Rule ,” which you may remember as the (murky, loophole-ridden) part of the financial reform bill that bars banks with access to the Fed’s discount window from proprietary trading. The goal of the rule was to basically force banks to make a choice: They could either have access to free money from the Fed during times of crisis or they could run a gambling casino, but they couldn’t do both. Cohan comments: Despite the high price of its investment, Goldman sees in Facebook a business bonanza, a nearly perfect nugget of investment-banking opportunities. First, Goldman’s cost of capital is close to zero — as a bank holding company, it can borrow from the Federal Reserve at negligible interest rates — so any capital gain it makes on its venture in Facebook will be sheer profit. Second, Goldman has almost certainly locked up the role of lead manager of the inevitable Facebook initial public offering. Fees for underwriting public offerings are generally about 7 percent of the value of the stock sold. Facebook could easily sell $2 billion of stock or more, generating fees to Goldman and the other underwriters of at least $140 million. The other benefit for Goldman in leading the public offering — aside from major bragging rights — is that it can use its marketing, sales and distribution muscle to make sure the value of Facebook at the time of the offering exceeds the $50 billion valuation at which Goldman invested. Goldman has also won from Facebook the right to offer an additional $1.5 billion of the company’s stock to its private-wealth clients. According to The Times, Goldman will be creating a “special purpose vehicle” to sell the stock to its wealthy clients and then will charge them a 4 percent initial fee plus 5 percent of any profits. As anyone who knows the history of the Internets knows, betting on hot websites to stay hugely successful over more than a few years — Geocities! MySpace! Friendster! — is a dubious venture. But as Cohan notes, there’s not much risk and a lot of reward for Goldman for investing in Facebook since it can borrow money from the Fed at extremely low rates. So if Facebook does indeed go the way of Pets.com, it’s no big deal since Goldman can run to Daddy Fed for more free money. Anyone else see a wee bit of moral hazard in this scenario? Felix Salmon also explores this issue a bit. And for some amusement, check out the Wall Street Journal’s comparison of Goldman’s Facebook investment pitch with a similar pitch from the deposed ruler of Nigeria. Onto some daily news! Jobless claims for the past month are at the lowest they’ve been in nearly two-and-a-half years. If you want to make a case that the real economy (versus just the stock market) is improving, this is some pretty good evidence. But even if tomorrow’s jobs figure comes in around the +297,000 figure the ADP reported this week, we’ve still got a long way to go. Since so many people have been out of work for so long, it’s going to be very difficult for many of them to find jobs. It would be nice if our government decided to simply hire people to build critical infrastructure like it did in the 1930s, but apparently we have to rely on the benevolence of our corporate masters instead of doing things to directly fix problems. Welcome to modern America. Paul Blumenthal of the Sunlight Foundation is criticizing President Obama’s decision to hire Bill Daley as his new chief of staff. He persuasively argues that Daley will make Obama’s policy toward Wall Street suck even greater quantities of ass: The President once told a meeting of bankers that he was “the only thing standing between you and the pitchforks.” That apparently wasn’t good enough. Picking Daley would send the message that the pitchforks–normal people–matter less than the continued flow of campaign donations from the uber-wealthy. Barack Obama raised $39 million from the finance, insurance and real estate sector in his 2008 bid for President, the most raised from this sector by anyone in one cycle seeking political office in the United States ever. Even more problematic than the need to corral donors for 2012 is that Daley’s presence would allow him to control the time of the President. Daley could choose who the President sees and what information gets to the President. Based on the praise the financial sector has for the Daley selection, it is clear who those people are and what that information would be. In essence, Daley would act as a stovepipe for the interests of Wall Street, as if bankers didn’t have enough influence already. At this point progressives need to stop being “disappointed” in Obama and see him for what he really is: A standard Clintonite neoliberal who won’t look out for the interests of working people. Sure, we’ll get some token appointments of people like Elizabeth Warren but the people who will really be calling the shots are the Tim Geithners, Bill Daleys and Larry Summerses (is that a word?). Expecting anything but the worst in terms of economic policy from this point forward would be foolhardy. And finally, we have some interesting news on the foreclosure fraud front: Sweeping evidence of the case the state attorney general’s office has built in its pursuit of foreclosure justice for Florida homeowners is outlined in a 98-page presentation complete with copies of allegedly forged signatures, false notarizations, bogus witnesses and improper mortgage assignments. The presentation, titled “Unfair, Deceptive and Unconscionable Acts in Foreclosure Cases,” was given during an early December conference of the Florida Association of Court Clerks and Comptrollers by the attorney general’s economic crimes division. It is one of the first examples of what the state has compiled in its exploration of foreclosure malpractice, condemning banks, mortgage servicers and law firms for contributing to the crisis by cutting corners. In page after page of copied records, the presentation meticulously documents cases of questionable signatures, notarizations that could not have occurred when they are said to have because of when the notary stamp expires, and foreclosures filed by entities that might not have had legal ability to foreclose. It also focuses largely on assignments of mortgage, documents that transfer ownership of mortgages from one bank to another. Mortgage assignments became an issue after the real estate boom, when mortgages were sold and resold, packaged into securitized trusts and otherwise transferred in a labyrinthine fashion that made tracking difficult. As foreclosures mounted, the banks appointed people to create assignments, “thousands and thousands and thousands” of which were signed weekly by people who may not have known what they were signing. In one example, a signature by someone named Linda Green is said to appear on hundreds of thousands of mortgage documents from dozens of banks and mortgage companies, but in varying styles. In another example, the signature of Scott Anderson, an employee of West Palm Beach-based Ocwen Financial Corp., appears in four styles on mortgage assignments. I know I’m becoming a broken record on this, but can our government pleasepleasepleaseplease PLEEEEEEEAAAASE start throwing some people in jail over this crap? Fraud that is this blatant and destructive is not something that can be solved by a bit of “oopsie!” cash. And for God’s sake, if you do throw people in jail, make sure they’re fairly high up on the food chain, OK? I don’t want to see you throw the book at Billy Bob the Robo-Signer and then tell me that justice has been served. Happy Friday, everyone!
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C&L Opening Bell: More on the SquidBook Deal
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on January 7, 2011. Filed under