Wednesday, January 12, 2011

"Two toxic bubbles in one By Martin Hutchinson"

"Goldman Sachs' US$2 billion deal for Facebook, valuing the social networking site at $50 billion, combines the worst elements of the 1997-2000 and 2004-07 bubbles.

It sets a grossly excessive valuation on an Internet company with modest revenues and prospects. It also involves an investment bank structuring a complex deal to maximize its own fees, while driving a truck through two major elements of financial services regulation.

Add a third element, that it places a company controlling personal information on 500 million users in close business partnership

with a Russian billionaire with a criminal record and you can see the deal is truly groundbreaking. It should also raise important red flags about current market conditions."

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