44 karma · joined August 12, 2008
The IPO investors, themselves will be buying in the hope of making a gain, if their analysis/forecasts/judgement is wrong - it won't be Goldman that screwed them, it will be failure of their own judgement. And also their own willingness to join to 'bubble' to make a gain.
Also, if Goldman are the underwriters of the IPO, and they fail to sell the shares at the 'artificially high' price, they will have to take on the shares themselves. If such a high profile IPO is not fully subscribed, it won't reflect well on Goldman, so setting an artificially high price, is not in their interest, but setting a marketable price is.
Also empirical evidence suggests IPO's tend to be underpriced as opposed to over priced, to allow for gains on day one. (see http://en.wikipedia.org/wiki/Initial_public_offering#pricing)
With Goldman themselves having $450m in facebook, this also adds some credibility come IPO time, as GS themselves will have 'skin in the game'.