This page has been archived and commenting is disabled.

Guest Post: Is Goldman Sachs A Vampire Squid On Facebook’s Face?

Tyler Durden's picture


Submitted by Wall St. Cheat Sheet

Is Goldman Sachs a Vampire Squid on Facebook’s Face?

There’s confidence, then there’s bravado.

Goldman Sachs (NYSE:GS)
is acting more insecure than ever with an incredibly pompous payment
structure for private placement shares of social networking site Facebook. According to Bloomberg Markets Magazine (via Business Insider), the investment banking deal doesn’t have only placement agent fees, it also includes a Vampire Squid Clause:

The firm would levy a 4% placement fee on clients, plus a .5% “expense reserve” fee. It would also require investors to surrender 5% of any profits, known as “carried interest,” according to a Goldman Sachs document.

This is Everything Wrong with Wall Street Today

We can debate whether Wall Street owes society a fiduciary duty. But the Vampire Squid Clause is an affront to the efficiencies and benefits of capitalism.

As my boss told me on my first day as an investment banker, “Don’t
get a big head. You’re nothing more than a glamorized used-car
salesman.” In other words, all I did was repackage and sell interests in
used businesses. Goldman is doing just that when they connect
prospective investors with Facebook. Nothing more, nothing less.

Is making a connection worth a carried interest in future returns?
ABSOLUTELY NOT. This isn’t Goldman’s hedge funds or trading desks where
Goldman is actually creating value in the underlying businesses or
generating trading profits. Investment banking is an agency service.
Goldman is nothing more than a broker for its clients and Facebook.

If investors and companies are willing to give a middle-man a
percentage of upside returns (of course Goldman carries no risk — the
clients hold all that), we are agreeing that a percentage of
the value created by the hard working employees of the company and the
risk-taking investors should be skimmed away from the capital’s best
use. For capitalism to thrive, risk-takers must be fully rewarded for
taking risks, and businesses must be fully rewarded for adding value to
society. An agent, of course, is entitled to a flat fee.

Facebook Employees and Investors Should be Livid

Kudos to billionaire Jim Clark for exposing this
thievery. Additional kudos for finding another company willing to broker
the deal for a cheaper and fairer price. Every other prospective
investor should step up and do the same.

Additionally, employees of Facebook should be pissed. They are most
likely working ~100 hours a week and dedicating their lives to the
company. That makes the Vampire Squid Clause even more insulting —
especially when you consider Goldman’s investor network is reached with
nothing more than phone calls, emails, and private placement memos full
of cut-and-pastes by some first or second year ibankers working for what
amounts to less than minimum wage per hour.

Rip Off the Vampire Squid

So, Facebook employees, investors, and prospective investors: rip it off! Rip off that Vampire Squid so capital markets and capitalism can continue breathing.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 01/26/2011 - 13:48 | Link to Comment satansanus
satansanus's picture

facebook is so 2008

Wed, 01/26/2011 - 13:51 | Link to Comment unwashedmass
unwashedmass's picture

the zuckerberg kid is smart, no doubt...but in the world of finance, he is going to be taken to the cleaners and dipped in the chemicals in the backroom if he sticks with the squid.

the squid saw that baby comin'......and has been rubbing its tentacles into a frenzy in anticipation.

Wed, 01/26/2011 - 14:12 | Link to Comment andybev01
andybev01's picture


Wed, 01/26/2011 - 14:54 | Link to Comment Zero Govt
Zero Govt's picture


Is Goldman Sachs A Vampire Squid On Facebook’s Face?

I'm so hed-f'ked with the imagery I'm too dizzy to read the article!! 


Wed, 01/26/2011 - 14:42 | Link to Comment Bartanist
Bartanist's picture

Lol ... that seems naive. The only reason Zuckerberg was funded in the first place is that his family is on the inside of the mafia.

There is a "squid-pro-quo".

Goldman is only able to make the deal and get Zuckerberg to sellout his employees, the new investors and his ficuciary duty because Zuckerman is being well taken care of.

The new bagholders (err investors) maybe not so much.

Wed, 01/26/2011 - 14:08 | Link to Comment Sudden Debt
Sudden Debt's picture

They can use facebook to cause riots and SHORT THE ENTIRE COUNTRY WHILE THEY ARE AT IT!!!




I'm just kidding, they would never do that.

to many moral thingies and all preventing them to do so...

Scouts honor...

Pinky swear...

Cross that hard and hope to...

Wed, 01/26/2011 - 18:29 | Link to Comment CPL
CPL's picture

GS and the new dot.bomb 2.0...they did a great job last time around keeping everyone in fiscal shape...oh wait...I just made myself sad a little...

Wed, 01/26/2011 - 20:42 | Link to Comment CowboyMonkey
CowboyMonkey's picture


Nice....pinky swear

Wed, 01/26/2011 - 14:02 | Link to Comment DavidC
DavidC's picture

Answer - yes, it is.


Wed, 01/26/2011 - 14:19 | Link to Comment TheAkashicRecord
TheAkashicRecord's picture

Please rip it off so Facebook can continue creating value by providing an outlet for narcissism, egotism, and selling your personal data to 3rd parties so they can effectively target the peons so that they buy more trinkets made in China (or wherever manufacturing is moving these days, Laos?).  If Facebook didn't provide this market niche, who else would?  

Capitalism doesn't exist, the free market does not exist ... fuse together oligarchy, corporatism, military-industrial complex, cronyism, and security theater and you get a much better explanation of our system.  Is there a neat and tidy word for that?

If the system we operate under is capitalism, I can't wait until it stops breathing. 

Wed, 01/26/2011 - 14:30 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Well said AR. Very well said indeed.


Wed, 01/26/2011 - 14:32 | Link to Comment flattrader
flattrader's picture

How could millions of people live without Farmville?

They might actually have to go out in the backyard and plant a garden, no?

Wed, 01/26/2011 - 15:02 | Link to Comment TheAkashicRecord
TheAkashicRecord's picture

I had an awesome idea ...

Create a program that would destroy peoples virtual farms with random virtual natural disasters (a chupacabra has eaten all of your cows) and then simultaneously create a "virtual insurance agency" where people would have to pay real money to protect their virtual assets. 

Wed, 01/26/2011 - 18:26 | Link to Comment CPL
CPL's picture

It's called taxes and the insurance sold is called bank deposit insurance.

Can't be more virtual, online and pretend than the MMORPG called banking

Wed, 01/26/2011 - 17:20 | Link to Comment Manbarepig
Manbarepig's picture

Honestly, I'm a little aroused after reading that...

Wed, 01/26/2011 - 14:20 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Aha! That will be a battle. Because Suckerbig is not alone. He has big investors like Microcrap, who know how to play the Wall Street Game.
But overall, the squid is going to overreach soon, with the wrong people. Everyone knows the Mafia is their partner in most of Wall street crime. I hear there was a big take-down/shake-down in the Mafia in NY/NJ yesterday.
i wouldn't be surprised if the Squid is sweating that, more than a little spotlight on it's business as usual of raping it's marks.
Because someone sure has the dirt on them, big time.


Wed, 01/26/2011 - 14:26 | Link to Comment Translational Lift
Translational Lift's picture

Who ever deals with the squid deserves exactly what they get………..

Wed, 01/26/2011 - 14:29 | Link to Comment Titus
Titus's picture

ha ha watch them squirt ink all over the facebook's financials and run (away with the money, of course).

Wed, 01/26/2011 - 14:29 | Link to Comment dick cheneys ghost
dick cheneys ghost's picture

must read

ho settles dispute with family

Wed, 01/26/2011 - 14:33 | Link to Comment TruthInSunshine
TruthInSunshine's picture


Is Facebook worth $1 trillion?


LMFAO. 1999 called and wants you to quit embarassing it by what are ridiculous valuations even by bubble standards.

Wed, 01/26/2011 - 14:35 | Link to Comment wintermute
wintermute's picture

Remember the face-hugger in Alien?

Facebook looked right into the egg and now has the face-hugger attached with a feeding tube down its throat. Any attempt to cut the foul thing off will result in acid burn.

Wed, 01/26/2011 - 14:37 | Link to Comment buzzsaw99
buzzsaw99's picture

dot com bubble redux

Wed, 01/26/2011 - 15:53 | Link to Comment JR
JR's picture

Scarcely a week goes by without discovering a new target encircled by a Goldman tenacle.  Let’s travel all the way across the sea to Davos and as an insider you’ll be listening to one of the voices of the squid—Robert Rubin.  Here, spend frightening moments listening to this voice:

Global Insiders Warned: U.S. Debt Crisis Could Explode Anytime | Economic Policy Journal | Robert Wenzel | January 25, 2011

…When attendees arrive and check in, they will be given their badges and a copy of a special Davos magazine, prepared especially for the event. In the magazine will be an article by Robert Rubin. He is an insider's insider. Participants will read the article. Rubin is so wired in that when insiders think of the people who are operating behind a president, it is names like Rubin's that come to mind. Jacob Lew the new director of the Office of Management and Budget is connected to Rubin. The old director of OMB, Peter Orszag, was connected to Rubin. The new head of the National Economic Council, Gene Sperling, is connected to Rubin, as was the previous NEC head, Larry Summers. It goes on. Rubin served as Treasury Secretary under Bill Clinton. He was former co-CEO of Goldman Sachs. He is co-Chairman of the Council on Foreign Relations. Got the idea? Insiders will read what he has written.

The first part of the article is about what the United States needs to do to get the economy going. It is a desperate shot taken at the buzzer from beyond half court. Rubin knows this...

The second part of the article is much more significant. It is the breakdown of what is going wrong in the United States. An abbreviated version of the "Davos Warning" has been printed in FT.
Rubin wrote (my emphasis):

The risks of our fiscal position are serious and multiple. And while these risks become more severe over time as our debt position worsens, all of these either have begun to materialise or could do so in the near term, so we should act now.

What multiple shapes could the crisis take? Rubin writes to the Davos insiders (My emphasis):

To be specific about the risks, deficits could crowd out private investment, which could choke off a private investment recovery. Moreover, the capacity for public investment is already diminishing, and could be exacerbated by growing entitlement costs and mounting interest payments...

Most dangerously, there is a risk of disruption to our bond and currency markets from the fear of much higher interest rates due to future imbalances or from fear of inflation because of efforts to monetise our debt. The result could be significant deficit premiums on bond market interest rates, seriously impeding private investment and growth or, worse, acute bond market declines that cause an economic crisis. This could also start in the currency markets.

While the likelihood of major market disruptions is greater in the intermediate and longer term, the shorter-term risks are also real. Market psychology can change unexpectedly and dramatically – either on its own or because of some catalyst – when underlying conditions are unsound. Possible catalysts are a debt ceiling confrontation, currency market problems, and state deficits...

For emphasis, I remind you this is a former Treasury Secretary of the United States writing. One of President Obama's top outside advisers. So does Rubin think there is an easy solution to the debt problem? He writes:

Growing out of our fiscal morass over time without policy action would require inconceivable rates of growth. Muddling through with unexpectedly favourable developments is extremely unlikely. The strong probability is that either we make the hard decisions so vital to our future, or we will be forced at some point to act more harshly and with less time to thoughtfully set priorities. Our long history of political and economic resilience should augur well. But these decisions are extremely difficult, and the question is whether we have the political will to face up to what we must do.

There you have it, from a man as inside as you can get:

...our structural fiscal trajectory is unsustainable with multiple, serious risks (while at the same time, our large cyclical deficits are exacerbating debt levels and interest costs)...

Bottom line: The United States is in serious financial and economic trouble. It is only a matter of time before the crisis explodes. Don't take my word for it, just re-read what the former Treasury Secretary has to say. It's all there.

P.S. The Goldman-Robert Rubin-funded Hamilton Project embedded in the Brookings Institution and in the Obama government is essentially pushing for cuts in entitlements (like social security), for outsourcing American jobs, and for more NAFTA-type agreements -- J.R.

Wed, 01/26/2011 - 15:55 | Link to Comment williambanzai7
williambanzai7's picture

I feel very badly for the whole circus act...Squids, Faceshnooks and sophisticated morons. Where is my clown in the sewer file...

Wed, 01/26/2011 - 16:22 | Link to Comment nedwardkelly
nedwardkelly's picture

Yeah but what's crazier... The fact that Goldman charges it, or that there's people that will pay it? Goldman gets 4% of the billion the 'sold' plus 5% of any future earnings... Yet facebook selected them to do the placement and apparently plenty of investors were happy paying the fee.

Wed, 01/26/2011 - 16:25 | Link to Comment rotten
rotten's picture

It is like this. Facebook isn't worth $50 billion and Zuckerberg isn't worth $7 billion like they claim.

Not yet anyway. This has been the biggest pump set up in history. They get Sorkin to write the Social Network movie. All of 2010 has been pumping up Zuckerberg and Facebook. They grease some palms to get MZ named Time Person of the Year.

2011 is when the fleece is suppose to happen. You can't get a better build up.  Boiler Room type stuff.

Wed, 01/26/2011 - 17:45 | Link to Comment cat2
cat2's picture

The difference is Goldman puts sawdust in the transmission and says it was only driven to Sunday School by Granny once a week.

Wed, 01/26/2011 - 19:44 | Link to Comment knukles
knukles's picture

Ah, the poetic justice of it all.
It's absolutely A-OK, AAA across by all services A-1+, P-1 to share with one another that they're just a bunch of used car salesmen (making millions, which was where the ha-ha but we never talk about it came in) but when the public knowingly holds them in such distain therefore, it's an embarrassment, a slight to one's dignity, a manifest erosion of one's fundamental, most basic self-esteem.

He who dies with the most toys is still a twat.

Thu, 01/27/2011 - 01:33 | Link to Comment Tapeworm
Tapeworm's picture

It would be nice for the taxcows if the underwriter had to post a 10 per cent bond to deal with the lawsuits that will clog the taxcow funded court system.

Do NOT follow this link or you will be banned from the site!