Facebook Nation/Euphoric Economics/21st Century?

http://www.nytimes.com/2011/01/03/opinion/03mon2.html

http://www.nytimes.com/2011/01/03/opinion/03krugman.html?emc=eta1

http://dealbook.nytimes.com/2011/01/02/goldman-invests-in-facebook-at-50-billion-valuation/?nl=todaysheadlines&emc=tha2

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"Reflect upon your present blessings, of which every man has plenty; not on your past misfortunes, of which all men have some." (Charles Dickens)

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(We left a Christmas/New Years message up on our whiteboard over the holidays - we change our whiteboard message each week - and this week because people like to stop in and see what our thoughts are. Since some of you are in other places now and people liked the "thought" so much, we've left the thought above up (on our whiteboard) and we've put it with today's post. It's a thought that doesn't just apply during holidays.)

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So, Goldman has reached out to its wealthy private clients, offering them a chance to invest in Facebook. Facebook is considering a possible public offering in 2012.

Sunday night saw a number of Goldman clients getting an email from their Goldman broker offering them an opportunity to invest in an unnamed "private company that is considering a transaction to raise additional capital." Goldman clients would have to put up $2 million to invest and would be prohibited from selling their shares until 2013.

Facebook has raised $500 million from Goldman and a Russian investor in a transaction that values the company at $50 billion. As part of its deal with Facebook, Goldman is expected to draw in $1.5 billion for Facebook.

Although Facebook is not a public company, it trades on secondary markets. The sellers on these markets are typically former employees of companies like Facebook and investors looking to unload their stakes. The "buyers" are mostly wealthy speculators looking to get in on an opportunity before the investing public can.

The new money will give Facebook more firepower to steal away valuable employees, develop new products and possibly pursue acquisitions. The new investment comes as the SEC has begun an inquiry into the increasingly hot market for shares in Internet companies - some experts are suggesting that this inquiry is focused on whether certain companies are "improperly" using the private market to get around public disclosure requirements.

In a "rare" move, Goldman is planning to create a "special purpose vehicle" (OMG! Run for it!) to allow its high-net-worth clients to invest in Facebook. Have we already forgotten about collateralized debt obligations (CDOs!)? And "tranches" of same? And "CLOs" and "CMOs"...?

While the SEC requires companies with more than 499 investors to disclose their financial results to the public, Goldman's proposed "special purpose vehicle" (we'll call this the "SPV") may be able to get around such a rule because it would be managed by Goldman and considered just "one" investor (really?), even though it could conceivably be pooling investments from thousands of clients. To us the SPV sounds suspiciously like what Enron was doing off balance sheet but then we're not the regulators.

When Mark Zuckerberg was recently interviewed on "60 Minutes" he didn't flinch when his personal worth was estimated at $6.9 billion. What's interesting is that $6.9 billion is a number derived from Facebook valued at $23 billion. Goldman is putting Facebook's current valuation north of $50 billion which, of course, would more than double Zuckerberg's $6.9 billion estimated personal worth.

While all this confidence is being expressed in public and private financial markets, it's interesting to view Paul Krugman's post today ("Deep Hole Economics" attached): "Even though we may finally have stopped digging, we're still near the bottom of a very deep hole."

What particularly concerns Krugman is what he calls "self-denying optimism" (great term!). He worries that policy makers will look at a few favorable economic indicators, decide they no longer need to promote economic recovery, and take steps that send us sliding back to the bottom.

As Krugman rightly points out, it's "JOBS," not GDP numbers, that matter to American families. And, when you start with an unemployment rate of near 10%, the amount of growth needed to get back to a "tolerable" number is "daunting." GDP is growing (2.5%) but not fast enough to bring unemployment down.

Last, we're checking on what century we're in because the editors of the NY Times are. And, rightly so. In December, the Justice Department settled an antitrust suit with Lucasfilm over an egregious "no solicitation" agreement with rival Pixar. Those studios regularly compete for digital animators, highly skilled professionals. But Pixar and Lucasfilm agreed not to cold-call each other's employees and to notify each other when making an offer to the other company's employee (they also conspired about pay limitations, etc.).

Here's a fact: it's been a basic tenet of labor law for a long time that two companies cannot conspire to limit the job opportunities of employees elsewhere. Without competitive bidding by employers, many workers would have little chance of getting a raise. The deal between the studios was, in effect, an "anticompetitive tool to keep a lid on digital animators' pay."

As the Times points out, this is by no means an isolated case. In September, the justice Department settled another suit over similar no-solicitation agreements involving Adobe Systems, Apple, Google, Intel, Intuit and (wait for it) Pixar.

Both cases were settled under similar terms: forbidding the companies to cut deals to refrain from competing for employees - either cold-calling or using other recruitment techniques. As the Times points out, "We hope the settlements will also serve as a reality check for those companies. They are supposed to be laying the technological groundwork for a better future. That future can't be built with exploitive labor practices."

So, we sit back and put the three situations we referred to above together and we get: at the high end, Facebook and Goldman have confidence in the economy and/or "markets." In the middle, there are "sectors" of the labor market that are "short" (like, not enough skilled animators) and that's a good thing because those sectors are doing well. But, overall, as Krugman points out, positive GDP projections don't create jobs. Those projections may encourage capital spending in 2011 but we need to see evidence of that soon.