Here is Facebook founder Mark Zuckerberg saying he doesn’t believe in privacy. Here is Facebook tapping Goldman Sachs to work some financial magic so that it can raise a bunch of capital without disclosing anything to the public. Forbes’ Jeff Bercovici notes the irony:
…if anyone has the right to be annoyed here, it’s Facebook’s users. How many times has Zuckerberg — a man who reportedly “doesn’t believe in privacy” – told them they were freaking out unnecessarily to some new feature that offered up their information to third parties? But when it comes to disclosing the “social graph” of who owns Facebook itself, Zuckerberg would rather resort to measures that may or may not be legal than go public. Strictly speaking, regulating irony is not within the federal government’s purview, but if it were, this deal would surely run aground.
The special purpose vehicle that Goldman is said to be setting up for Facebook is highly reminiscent of the opaque financial instruments which fueled the last years of the housing bubble, or the special arrangements at the heart of the dot com IPO frenzy. Both moments of financial wizardry got Goldman in a bit of hot water, but the penalties were negligible compared to the profits.
This latest deal is likely an immensely profitable, illegal arrangement for which neither company will face significant consequences in the future. It is easy to imagine hordes of Facebook user/investors holding nosediving Facebook stock in a few years, after the company goes public on the strength of these bubble-inflating arrangements. Goldman Sachs clients who got in first get paid, everyone else hopes that Facebook is more like Priceline.com than Pets.com after the crash. See Henry Blodget’s post for an interesting perspective.
Looking over their shared ties on LittleSis, it seems that Facebook and Goldman Sachs were already good friends before this deal. CFO David Ebersman was formerly the CFO at Genentech, which Goldman advised to the tune of $55 million during its takeover by Roche (CFOs play an important role in these things). General counsel Ted Ullyot previously worked at ESL, a hedge fund run by Eddie Lampert, a Goldman alum and Robert Rubin protege. COO Sheryl Sandberg and VP of global operations David Fischer came up in the world at the Clinton Treasury, which was tightly networked with Goldman Sachs through Robert Rubin and others. And few companies recruit from Harvard, the birthplace of Facebook, with more zeal than Goldman.
Yes, there are plenty of Facebook-Goldman friendships. Here is Facebook exec Fischer having a chuckle about the bailouts while skiing with a Goldman friend:
Elite connections like these together form the “social and personalized web” that supports our bubble-bailout economy, where people like Zuckerberg, Sandberg, and Fischer laugh all the way to the bank (and the bank returns the favor) against a backdrop of long-term economic stagnation for the rest of the country.