One thing that seems to have escaped everyone’s notice here is that Goldman Sachs —the reviled villain of Wall Street—is actually serving the two traditional functions of an investment bank by doing this deal with Facebook.
Here’s how none other than Eliot Spitzer described the traditional functions of an investment bank:
In the traditional model, investment banks are thought to serve two critical functions. First, they are financial intermediaries: They are the conduits for transferring savings to those sectors of the economy that need capital. They fulfill the essential function, the economists tell us, of efficient allocation of capital. That is where their initial public offering and other capital-raising functions come into play. They enable productive companies to access the capital markets so they can grow their businesses.
Under the reported terms of its deal with Facebook, Goldman will transfer $1.5 billion from wealthy investors to Facebook in exchange for shares in company. This is what capital allocation looks like, folks.
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