The controversial Facebook IPO may be better seen as an illustration of hype building rather than book building. It also smells of some desperation to make maximum hay while the sun (read hype) shines.

The desperation best shows up in the last-minute move to increase the number of shares offered, even when the float had already become the biggest by any US tech company ever. Looking from a distance, it appears that promoters had a rather weak sense of trust in the company’s long-term earning power and behaved as if there was no tomorrow to reap rewards for their investments.

Indeed, they had good reason to do so. At $38, the share price reportedly represented 100 times the social networking site’s historical earnings. That made Apple and Google pale, at 14 times and 19 times the historical earnings, respectively.

Well, I’m not discussing the allegations that lead underwriter Morgan Stanley didn’t reveal Facebook’s lowered earnings guidance to all investors alike.

I’m instead surprised that retail investors failed to see the obvious hype and put in their hard earned money into an IPO that was bound to collapse under the super weight of its own non-real structure.

It’s dangerous that when the dark clouds of the historic economic crisis are still not gone, investors could lose all caution and fall for hype so easily.

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