A historical review of the General Motors bailout might be in order since General Motors, Government Motors, Canada, and the United Auto Workers Union have announced a public stock sale by the formerly bankrupted auto maker. At the time the taxpayers bailed out GM, President Obama was president-elect. Nancy Pelosi was Speaker of the House and Harry Reid was Senate leader. U.S. taxpayers had already made a loan of $25 billion dollars to the troubled car company.
Obama’s transition team determined that Chrysler and General Motors should be bailed out. With this objective, President Obama sent a letter to the outgoing administration to support the GM/Chrysler bailouts. House Speaker Nancy Pelosi did the same. The U.S. government loans were converted into stock ownership in the bankrupt company.
For President Obama, who had received strong support from the UAW, the optics of the car company bailouts were poor. Many Americans opposed the car company bailout plan. A $14 billion stopgap loan measure was passed during the last months of the Bush administration and Democrats pushed the bailout hard when President Obama took office .
Ultimately, the taxpayers bought into GM to the tune of $50 billion and a 60% ownership stake, with Canada and the UAW owning the rest. But though the taxpayers were good enough to bail out General Motors, they’re not good enough to buy GM IPO stock.
The Government Motors/GM IPO offers the opportunity for the well-heeled to make quick money on the “pop” associated with new offerings. Of course, too much “pop” would make the White House nervous, giving the appearance of another Wall Street handout to institutional investors, hedge funds, mutual funds, and sovereign funds. For this reason, it was announced today that the price of one GM share was revised upward from $26-$29 to $32 to $33. But why are small “retail” investors frozen out of the process?
Some analysts will tell you it’s because transferring the stock to small firms who would be too “difficult.” Read “difficult” to mean less money for the big investment firms and underwriters. Read “difficult” to mean the financial firms, with government approval, prefer to make quick and easy money without getting bogged down by the grubby taxpayers who bankrolled the GM bailout.
You’d think that the Obama administration, having pushed the bailouts for “American workers,” would have mandated some stocks be sold to the people who paid for it. Wrong. Retailers like Charles Schwab and other firms which deal with mom-and-pop investors will have none of the new GM offering. The offerings go only to the well-heeled clients of the world’s largest financial firms.
Except for what may be termed “affirmative action tranches,” i.e, an allotment for firms run by Hispanics, African-Americans, or women, there are no plans to distribute allotments to small firms who do business with the wee people. At least one financial analyst expressed doubts.. Gary Kaminsky , speaking yesterday on the CNBC’s “Strategy Session,” said that the IPO shares distributed to minority firms will likely end up in the laps of the large hedge fund companies working through the likes of giants J.P Morgan and Morgan Stanley.
The “sure” money to be made from an IPO occurs in the early stock trading. In the long term, the “New GM” may not be any better than the old GM, and the stock price may ultimately reflect that. But with the potential political fallout of the IPO, the liberal media and administration financial analysts are more proud of General Motors and the cars they make than is the general public.