The US government will lose approximately $4.5 billion in the GM IPO taking place today. Yet, this is considered a “fair return” on tax payer money used to keep the automaker afloat. The US government holds a 61% stake in GM and will reduce this ownership to around 38%. Yet, to suggest this is “paying back the taxpayer” is untrue.
In the bankruptcy restructuring of GM, bondholders received about five cents on the dollar while the UAW was arbitrarily given a nearly 20% stake in the company. This was not due to bond purchase or stock ownership but it was a decision made on the part of the Obama administration .
It is important to understand that GM stockholders were left with absolutely nothing. Stockholders are the owners and in bankruptcy they are left holding the (empty) bag. Bondholders, on the other hand, are in the position of lenders and it is typical for all lenders to be treated equally in bankruptcy proceedings. That was not the case with the GM takeover. GM bondholders – average American citizens who had invested in the auto company – were considered less important than the UAW.
The GM IPO is not a step toward “paying back the taxpayer.” A $4.5 billion loss on the money loaned and the millions of dollars lost to taxpayers in the restructuring are beyond recovery. Moreover, the future of the company remains in doubt. It seems this IPO is part of a political strategy rather than an effort to bring stability to GM. A company that has so recently experienced a reshuffling at the top of the management ladder would not normally rush to an initial stock offering. Indeed, it appears that part of the reason for this IPO is an effort to raise money to pay off the billion dollar attorney fees. As Mark Modica reports on the National Legal and Policy Center website,
” The main beneficiaries of the GM wealth redistribution to this point have been the bankruptcy attorneys and advisers. It is estimated that the legal bill for the GM reorganization will be approximately $1 billion. Along with the UAW, the lawyers seem to be benefiting from a cozy relationship with Washington. Investment bankers will also get a cut of the wealth as the GM IPO hits the market.”
Ironically, the very same group that suffered the most under the government takeover of GM are shut out of participation in today’s GM IPO. As reported in today’s Washington Post,
” There has been some concern that ordinary retail investors — the ones whose tax dollars helped pay for GM’s bailout — are getting shut out of the IPO. Brokerage firms Charles Schwab and TD Ameritrade won’t be offering shares to customers. But the underwriters are expected to reserve about 20 percent for retail investors, which is not less than a typical IPO.”
Billions of dollars have been poured down the black hole of General Motors. The GM IPO is simply political theater and says nothing about the health of the automaker or the reduction of federal intrusion into the marketplace. Instead, it is further evidence the American people have a lot of work to do in regaining the liberty bequeathed us by our Forefathers. Our freedom will not be secure until we break the relationship between Big Business and Big Government – and both are brought to heel.
The Wall Street Journal
National Legal Policy Center