"if you wanted to piss the SEC off and get into trouble."

How many officials in the current administration are former Goldman Sachs employees? Do you think that affects the likelihood of them getting into trouble?

Counterpoint: Arthur Andersen

The OP is referring to a well publicized controversy about the role of GS in the financial crisis and its influence over government decisions. Here's a good article summarizing common knowledge about GS: http://www.rollingstone.com/politics/news/the-great-american...

The implicit assumption is that people are willing to subvert their current employer for the benefit of their former employer (perhaps with the hope of being rehired by the former employer).

Yup, let's judge people by their former employers, not by their actions. I mean, Hank Paulson's decision not to bail out Lehman would have been totally OK, have he not been former Goldman CEO...

Not sure how many (if any) layers of sarcasm to strip away, so I'll just say: Hank Paulson's decision not to bail out Lehman was not OK regardless. His former employer simply might have informed that incorrect (for the US/world in general) decision. Simple bias; had GS been on the chopping block, I can personally guarantee he would not have advised letting it tank.

How are you so certain (that he would have treated GS differently)? What evidence would make you change your mind?

Human nature; exceptional behaviour from Paulson, which seems unlikely given the kind of person he had to become and loyalty he had to exhibit to get to be at the head of both GS and the Treasury.

One good thing came from letting Lehman die: the creators of Despicable Me were able to label their Bank of Evil as "formerly Lehman Brothers."

More than that- this type of deal could potentially greatly harm current Facebook equity holders, or much more likely potential buyers of the IPO. If Goldman Sachs is both an investor and the bank that eventually takes them public this deal is rife with conflicts of interest.

Ex: In order to invest at this "low" valuation Goldman had to promise to set the initial price of the IPO to be artificially high. People buy the IPO in Facebook excitement, and right when insiders are legally allowed to sell they dump stock and exercise options and later investors are screwed. Goldman makes huge profit in this situation- on both fees and their sale of stock.

If there are (or will be) investors willing to invest at the initial IPO price, how can you say that price is going to be 'artificially high'?

The IPO investors, themselves will be buying in the hope of making a gain, if their analysis/forecasts/judgement is wrong - it won't be Goldman that screwed them, it will be failure of their own judgement. And also their own willingness to join to 'bubble' to make a gain.

Also, if Goldman are the underwriters of the IPO, and they fail to sell the shares at the 'artificially high' price, they will have to take on the shares themselves. If such a high profile IPO is not fully subscribed, it won't reflect well on Goldman, so setting an artificially high price, is not in their interest, but setting a marketable price is.

Also empirical evidence suggests IPO's tend to be underpriced as opposed to over priced, to allow for gains on day one. (see http://en.wikipedia.org/wiki/Initial_public_offering#pricing)

With Goldman themselves having $450m in facebook, this also adds some credibility come IPO time, as GS themselves will have 'skin in the game'.

Shouldn't the bank that does the IPO try to set the price as high as will sell anyway?

Not at all- it's similar to the Real Estate Agent problem that is described in detail in Freakonomics. The bank has some slightly higher interest in raising the price and getting more money- but a much higher interest in offloading as much security as possible. This has led to problems like banks selling to specific IPO turnaround firms that can grab huge share volume early on, sending the IPO up in value before selling out right near close of trading, sometimes trashing hot IPOs on day 1.

You can read about this: http://antisocialmedia.net/ipo-probe-of-wall-street-ties-ton...

'One of Wall Street's savviest investors', GS, put hundreds of millions into Webvan, too. Maybe they're savvy on Wall Street, but that doesn't mean they are savvy tech-wise. They do know how to make money, however, and ethics need not be an obstacle. Hey, that makes them a great match for Facebook!

you laugh, they make major bank.