Financial Musical Chairs

This morning's NY Times offers William Cohan on Goldman Sachs and Facebook:

Last August, Facebook was valued at $27 billion and now it’s $50 billion — for a company with a reported $2 billion in revenue and negligible profits. If General Electric, with 2010 revenue of around $150 billion, traded at a similar multiple of revenue, it would be worth $3.75 trillion instead of $200 billion. Facebook is now considered to be worth more than Time Warner, DuPont and Goldman’s rival Morgan Stanley.

http://opinionator.blogs.nytimes.com/2011/01/04/friends-with-benefits/?hp

--He goes on to explain in detail the coming next round of high-finance musical chairs, in which Facebook is worth that much as long as the music's playing, Goldman plays IBGYBG and finds a seat when the music stops, and billions of dollars of asset value vanish into thin air, leaving not a rack behind. Read the whole thing; it's well worth it.

Yet again, we're offered an illustration of the difference between speculation and investment. One sets up an unstable situation destined to crash and burn; one builds lasting wealth and adds value to the economy. To the extent that resources and ingenuity find quicker and larger returns in the former than the latter, the, er, unbillionaire class will always be worse off. That's because the rich guys get their marks to trade trillions worth of dubiously valued assets at their nominal value, but, each trade, take real money off the top. That abstracts money out of the productive economy into their pockets, as surely as even the most punitive tax would.

One of my small, but real, glimmers of hope for the future is if the marks realize that they're being gamed, and wise up. Meanwhile, radar continues to sweep the skies over Schloss Wombat; no pigs yet detected...