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Saturday, September 4, 2010

Great News - Gov't To Lose Money On GM IPO

The announcement that General Motors would sell shares in an initial public offering was greeted as vindication for the federal government bailout of GM.  The IPO would be a way to pay back taxpayers and even to generate a profit for the government.

But it is not looking that way.

First, GM will not even begin its "road show," the time when it starts trying to convince major institutions about the IPO, until after the November elections.  How convenient.

Second, although the issue will not be priced until right before the offering is effective, current indications are that the price will be below the per share investment of the government, meaning that if the government sells shares to the public as part of the offering the government will realize a loss on those shares.

As reported by Reuters:
The U.S. government is likely to take a loss on General Motors Co in the first offering of the automaker's stock, six people familiar with preparations for the landmark IPO said.

Subsequent offerings of the government's holdings may be profitable depending on how investors trade the newly listed stock, the sources said.

But the question of whether taxpayers are ultimately made whole on GM's $50 billion bailout could be left open for years, the people said.

It could take more than three years for the Treasury to sell down its remaining stake in GM after the IPO, one person said. That would push a final accounting into the next presidential term.
This reminds me of the joke about the businessman who loses money on every sale, but makes it up on volume.

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Is Paul Krugman Heartless, Clueless or Confused (Pick Only One)?

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  1. It's not that bad. They can reclaim up to $3,000 per year of net loss by matching the loss against capital gains and carrying forward the rest for future tax years. We should be whole before the sun goes supernova and makes it all irrelevant.

    And don't bother praying to God to save us either. Stephen Hawking, recently proved "scientifically" that God didn't create the universe and so can't destroy it. God is just sitting in the audience eating popcorn and enjoying the show.

    You would think a man living on borrowed time and with both feet on banana peels would have a healthier fear of the unknowable. You know, just in case.

  2. And by the way, there is no indication yet that the government will make shares available to "the public". So far, it's primarily the unions and other Obama cronies that will reap a huge profit at the expense of the taxpayer.

  3. It's not too late for the feds to force GM to convert govt. equity into debt, which is what the bailout dough should have been in the first place. Such a conversion could be packaged together with an IPO, although it might take longer than a few months. GOPers in Congress would do well to start hollering about this now.

  4. "They can reclaim up to $3,000 per year" - true enough. however, any used losses could be used in one year to offset the giant cap gain anticapted from sale of the AIG stake, right. oops. nevermind.

  5. As a GM bondholder I must admit a certain amount of schadenfreude in the prospect of the government losing money in this IPO. But then again as a taxpayer once again I get to be screwed by Obama and the new communist party.

    I for the life of me cannot believe that anyone in their right mind would purchase shares in the 'new' GM. Not after the blatant disregard for the bankruptcy laws to favor a politically connected group. It happened once and it will happen again. GM cannot ever be legitimately profitable as long as it is a welfare scheme with auto manufacturing as a side line.

  6. After seeing the screwing the last group of investors took from GM why would anyone trust them again....? It's not a business anymore.
    It's a retirement plan that occasionally makes cars.
    It will never turn a real profit.

  7. Duly linked. After the General Motors "TARP money shuffle" of this past April, the only way we're going to get paid is for the stock to do well. In other words....

  8. Not enough is said about the pre-Obama-GM's public bondholders that were basically robbed by the government and union members under the restructured GM.

    Why would any sane investor bother with an IPO from a company that abrogated over $27 billion of private bond investments?

  9. NeoKong has hit the nail on the head. I read a prediction recently that I think is true: the bailout really didn't solve any of the long term structural problems and in a few years GM will be back with its hand out again. If you buy this stock, make sure it's only for a trade. If you want to own a piece of a car company for an investment, there are much better ones to be had.

  10. It should also be pointed out that there is much grumbling among the rank and file union members since the union leadership partnered up with management via stock ownership. The new hires are only paid a fraction of the old scale and are not part of the lucrative retirement pension plans of old.

    In a recent meeting, union leaders were booed and heckles out of the room. They had to leave after less than five minutes.

    Just shows that you can't organize against your own best interests. Union leaders now have more in common with management than their members.

    Now let's apply that same principle to government employee unions who are organized against taxpayers, not the government bureaucracy that manages them.

  11. Frankly, I'm somewhat glad the IPO will loose money. Imagine if this whole Govt. bailout of GM actually did make money, it would become exhibit A as a reason for the Govt. to bailout any industry that fails. The more painful this is, the less likely they will be able to sell it as a success in the future.

  12. I believe the joke about volume first appears in Heller's Catch 22. There may be an earlier source.

  13. I believe any one involved in selling stock with this Disclosure should be jailed for fraud.

    "We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan."

    Anyone who spent other people's money on this should lose their licence and be barred from Securities trading for life.