Business and finance 21 May 2012 IPOs made of sand Merchant banks do apparently gamble vast sums on hunches. Sign UpGet the New Statesman's Morning Call email. Sign-up Watching the Facebook IPO launch on Friday struck me as a typical example of Emperors New Clothes syndrome. Mainly because I’ve lived through it before. In March 1999 my agency picked up the global ad account for a new dotcom that was going to revolutionise the world of clothes retailing. It was called boo.com. Started by three twenty something Swedish entrepreneurs operating out of glamorous offices on Carnaby Street (which were soon replaced by bigger and even more glamorous offices on Regent Street), we stood on the sidelines and watched as investors in the company were swept along on a tidal wave of enthusiasm, lavish spending and unbridled and unquenchable ambition. Throughout the process we kept asking ourselves questions about the company. Why was all this funding, delivered from the some of the world’s wealthiest individuals and large merchant banks, arriving in a seemingly never ending supply, when there seemed so many flaws in the business model. There was no clear positioning for the company, indeed no clearly definition of what the company was going to sell, the technological ambitions for the site far outstripped what was apparently feasible back then, systems seemed flawed and everything appeared very hand to mouth. Yet, we reasoned, these big merchant banks weren’t stupid. No one would pile all this money into a start up without a clear vision for how they were going to get their money back. Would they? We concluded over and over again, that it must be us – we simply didn’t understand the machinations of high finance. Well, we quickly found out differently (as has been well documented) and a valuable lesson was learnt. Things can be too good to be true, merchant banks do apparently gamble vast sums on hunches, and our Finance Director, who said from the word go that it was all built on sand and would end in tears, really did know what she was talking about (hats off, Shirley). And of course, what was true of the dotcom bubble was true for many other areas which the merchant banks were, ahem, investing in - with no one brave enough to shout ‘look, they’ve got no clothes on’. Which is why I shudder when, despite all that has happened in the last 5 years, with the worlds wealth apparently built upon a mountain of doubt like some giant ponzi scheme, the banks – yes, the banks again – can decide that an 8 year old company with negligible assets is worth 200 times its annual profits, in a sector that saw its predecessor collapse from market leader to junk in a matter of months. And while there a few people shouting ‘Emperors New Clothes’, the banks carry on propping up their investment – because they can’t be seen to be gambling again….. But until we all start acknowledging that perhaps investments should be based on things like assets, guaranteed income, historical precedent and sensible(rather than high risk) growth, then nothing in the global economy is going to sort itself out. Meantime, if you run into a banker today who has invested in Facebook, just say one thing to them. Boo. › Slavoj Žižek in conversation with the New Statesman Photograph: Getty Images Richard Morris blogs at A View From Ham Common, which was named Best New Blog at the 2011 Lib Dem Conference Subscribe To stay on top of global affairs and enjoy even more international coverage subscribe for just £1 per month!