Explaining Southern California's economy

The Facebook Effect and the problem of California's budget

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Facebook founder and CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters on October 6, 2010 in Palo Alto, California.

What exactly is the "Facebook Effect" and why could be both a boon and bane for California's budget crisis? According to the Legislative Analyst's Office, it's the massive amount of money that will be infused into California's sagging revenues when Facebook launches its anticipated IPO later this year.

Facebook isn't even going to sell that many shares to the public — it will probably continue a trend of "low float" IPOs in tech offerings, designed to elevate valuations (fewer shares equals higher demands equals higher prices). But it's still expected to raise $10 billion and achieve, overnight, a market valuation of $100 billion.

The capital gains from the creation of all those new Facebook millionaires will bring...well, billions to the state's coffers. As Bloomberg (via the San Francisco Chronicle) reports, Gov. Jerry Brown is estimating that 2012 will see $96 billion in total capital gains earned as income. The LAO figures rather less: $64 billion. 

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