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Goldman Sachs and the Future of the Internet - Essay Example

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This paper will examine the history and investment philosophy of Goldman Sachs. It will analyze the dot-com bubble from an historical and sociological perspective. It will also consider the question of whether further investments by Goldman Sachs in Internet related enterprises would be worthwhile…
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Goldman Sachs and the Future of the Internet
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Download file to see previous pages Gus Levy, senior partner of the firm from1969 until 1976, is known for articulating the firm’s investment strategy as being “long-term greedy;” i.e. willing to absorb short term losses in exchange for the promise of long term profits. The dark side of the company’s dealings has been the fodder of many a polemical writer, however, and not without cause. In 1928 it started the Goldman Sachs Trading Company, which operated much like a Ponzi scheme and collapsed in the crash of 1929. In 1970 it nearly went under when the Penn Central Transportation Company went bankrupt, owing tens of millions of dollars in commercial paper from Goldman Sachs. A crisis erupted which involved numerous lawsuits. In 2007 Two Goldman traders, Michael Swenson and Josh Birnbaum, made a $4 billion profit by short-selling subprime mortgage securities. By 2008 their involvement in the financial products contributed to the global meltdown that occurred that year. A source of long-term controversy has been the ease with which Sachs employees transition into government roles. American president George H.W. Bush made former Goldman CEO Henry Paulson his Secretary of the Treasury. Current Secretary Timothy Geitner’s chief of staff is former Goldman lobbyist Mark Patterson. The current CEO of the company has visited the White House at least ten times since Barak Obama became president. It is reported that the firm was a major contributor to Obama’s 2008 campaign. (A Brief) This dichotomous image of being at once financial geniuses and underhanded opportunists is buttressed by Goldman’s activities since the early days of public Internet use. The company handled the IPO of Microsoft,...
This essay stresses that Goldman profits regardless of how the company they promote fares over time. However, there are two possible disadvantages in this scenario. Goldman may not sell its holdings in the company before the bubble bursts. It will then lose the profits earned from the stock’s price going up. Additionally, investors may be reluctant to invest money in firms promoted by Goldman if their reputation suffers over the long term.
This paper makes a conclusion that it is worthwhile for Goldman to invest in Internet firms such as Facebook is dependent on which scenario best benefits its overall profitability. Given that the last dot-com bubble is still remembered, a cautious strategy would be for the firm to exercise due diligence practices before promoting such companies. Unlike the 1990s, there now exist mature, stable web-based companies that show strong prospects for solid, continued growth into the future. The aforementioned Facebook is one example. This paper has only considered the question from a monetary viewpoint. There are also ethical considerations, however. Deliberately creating bubbles may benefit the firm doing so, but it virtually guarantees an economic contraction and ruined portfolios in the longer term. That same outcome can also be seen as undesirable purely from a selfish viewpoint. The world economy is currently in a very fragile state, largely due to the real estate bubble aftermath. ...Download file to see next pagesRead More
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