As readers of Hedgephone know, I have long argued that Wall Street’s last and greatest bubble was going to pop somewhere around the time that Facebook (FB) goes public. The reasoning was that the web 2.0 bubble is almost as vile and deplorable as the 1999 technology bubble. Most investors don’t have the type of long-term memories to avoid the pitfalls and bear-traps of investing in the latest growth idea.
Call me crazy, misguided, out of touch, behind the times, or whatever you like, but the bottom line is that investment bankers on Wall Street receive some of their largest underwriting fees from tech bubble IPO banking. Once the Facebook deal is unleashed on the investing public, the bubble will be so large and ominous that the relative mouse-click and eyeballs valuation game might end violently with a loud Hindenburg pop.
While investment bankers are supposed to be a respectable bunch who provide growth capital to innovative businesses, these guys also have an inherent conflict of interest and are looking for huge payouts with little regard to the small investor who buys into the frenzied hype that these IPO’s create. Additionally, many bankers on Wall Street are simply A-moral as opposed to immoral and could care less about the valuations they come up with using their pro-forma models – which really only have a use in a class room or sales floor setting.