UPDATE: 11-19-2010 GM'S PUBLIC OFFERING IS NOT ALL THAT IT SEEMS TO BE ...

From Investor's Business Daily, we see

"Yes, last week's GM IPO did fetch $33 a share, somewhat north of what was expected. But was it a success, really?"

"Start with the IPO. American taxpayers ponied up $50 billion to bail out GM, in exchange for which we got a 61% share in the company. In the IPO, we cut our government holdings to 33%, netting an estimated $13.6 billion or so. Good deal? Check the math. The U.S. lost an estimated $9.4 billion on the deal."

Worse than this is the claim GM made earlier that it had paid back its bailout 'in full, with interest, five years ahead of the original schedule.' As Reason's Nick Gillespie pointed out, GM 'repaid' its loan with other taxpayer-provided bailout funds. It was another useful lie, a fraud, all intended to show GM on the mend, thanks to the help of the federal government.

Continue reading this sad tale of governmental misdirection here.

Original Blog Entry ...

The people who created the problem are now in charge of its solution …

One needs only to review the Obama Administration’s allegedly illegal and imprudent handling of the General Motors takeover to be suspicious of their motives, timing and actions.

By what Constitutional authority does the President of the United States have to remove the President of a private corporation who is answerable only to his stockholders through the corporation’s Board of Directors?

By what Constitutional authority does the Administration have the right to circumvent civil law and place the unsecured claims of the unions ahead of the secured claims of the senior debt holders?

By what Constitutional authority does the Administration stage a coup d'état that avoids a court-supervised bankruptcy for a pre-planned and pre-staged government solution?

Who in the right mind would allow a neophyte with little or no real auto business experience to dictate settlement terms to General Motors? But then again he was married to the head of the former National Finance Chair for the Democratic Party and a committed Obama man.

So given the previously stacked deck, why should I take anything the Obama Administration says at face value?

Reuters is reporting …

“UPDATE 2-Taxpayers likely to face initial loss on GM IPO-sources”

* Treasury to sell first shares below break-even-sources

“The U.S. government is likely to take a loss on General Motors Co [GM.UL] 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.”

So if the American taxpayers are the losers, who might be the winners …

Insiders who can actually purchase stocks relatively cheaply in the hopes that an immediate run-up in price will yield a quick profit without too much risk.

The unions who can purchase additional stock relatively cheaply and increase their control over this one proud American icon of industry.

The Wall Street Wizards who are likely to broker the transactions and whose commission income on trading will add to their executive bonuses.

Spinning the story …

“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.”

“A decision to price the initial GM shares below the cost to taxpayers would follow the usual Wall Street practice of giving the first investors in a new stock a discount, but it could also help allay investor concern in the face of the slow recovery of the U.S. economy and flat auto sales.”

Here all all the reasons why the stock valuation is so low: Yada, yada, yada. Of course, the true value of the stock is a function of its book value should the assets be sold off in bankruptcy proceedings, the cost and availability of purchase funds and the investor bid-up premium based on nothing more than pure optimism – that is if you discount insider knowledge.

“GM in August filed paperwork for an IPO that could potentially be worth as much as $20 billion, making it one of the biggest IPOs of all time.”

What is it really worth, according to Reuters’ sources …

“Analysts and potential investors have projected a market value for GM of between $50 billion to around $90 billion, based on projections for the automaker's cash flow, comparisons with rival Ford Motor Co and trading in bonds in the old GM which are convertible into shares in the new company.”

“A market value at the high end of that range would be above the roughly $70 billion in market capitalization that GM needs to achieve for the U.S. government to break even on its $43 billion remaining investment in the automaker.”

“But IPOs typically price at a discount of 10 percent to 15 percent to theoretical fair value to reward investors for taking a risk on a new issue and pave the way for future stock floats. In tough market conditions, that discount can be even larger.”

“Another of the sources said the discount could be as much as 20 percent on the GM IPO compared with the U.S. Treasury's break-even point.”

"You have to sell people on the notion that there is an upside to what they are buying," one of the sources said.”

But it is quite another thing to build-in a predictable upside to reward those in the enviable position to purchase stock at the opening levels; later to resell it for a profit. This is the definition of rigged speculation, rather than preparing an investment opportunity.

“The U.S. Securities and Exchange Commission is now reviewing the automaker's S-1 filing.”

But can you even trust the SEC? An open-ended question given its historical reluctance to do its job (think Bernie Madoff where they were handed the case on a silver platter years before the crash) and the fact that the administration’s agency is headed by a hyper-partisan democrat.

The current chairman, Mary L. Schapiro is a democrat and the former chairperson and CEO of the Financial Industry Regulatory Authority, the securities industry self-regulatory organization for broker-dealers and exchanges in the United States. And we all know about self-regulation (wink-wink, nod-nod). Plus, she is not without controversy regarding her actions.

“In 2009, under the direction of Schapiro, the SEC attempted to settle a case with Bank of America regarding the disclosure of bonuses paid to Merrill Lynch executives just before their take over by Bank of America. U.S. District Judge Jed Rakoff threw out the proposed $33 million dollar settlement saying it ‘does not comport with the most elementary notions of justice and morality.’” <Source>

Can you trust what the government is saying?

“The U.S. government pumped $49.5 billion worth of taxpayer money into the automaker and took nearly 61 percent of its common stock.”

“GM has paid back $6.7 billion in debt to the Treasury and returned another $700 million in interest and dividends. The U.S. government also holds $2.1 billion in perpetual preferred shares in the automaker.”

“That leaves the government with a roughly $40 billion investment in the GM common stock that will debut in an IPO along with a new class of preferred shares that will convert into common shares under a mandatory provision.”

One might ask where the money came from if not from car sales – even with the government’s “cash-for-clunkers” incentive program. Some say it came from manipulation of government TARP (Troubled Asset Relief Program).

"Mr. Neil Barofsky, the Special Inspector General for TARP, testified before the Senate Finance Committee. During his testimony Mr. Barofsky addressed GM’s recent debt repayment activity, and stated that the funds GM is using to repay its TARP debt are not coming from GM earnings. Instead, GM seems to be using TARP funds from an escrow account at Treasury to make the debt repayments.” <Source>

Someone is not telling the whole truth and it appears to be General Motors and the White House.

Bottom line …

We need to clean house – remove the corrupt democrats and their special interest cronies – replacing them with “honest brokers” who serve “we the people.”

Let’s start draining the swamp in November – by restoring constitutional checks and balances to the Congress. No more democrats to carry Obama’s Marxist agenda and those former Goldman Sachs cronies who are salivating over a guaranteed General Motors stock play.

-- steve

Reference Links …

UPDATE 2-Taxpayers likely to face initial loss on GM IPO-sources | Reuters

Obama to GM CEO Wagoner: You're Fired!