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.
General market opinion is that the US stock market is not currently overvalued because it has not broken through its 2007 highs. I would argue that US fiscal and monetary policies are unsustainable, making the foundations of the economy far more fragile than in 2007. (more)
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