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Death by political correctness ...

QUESTION: GENERAL MOTOR'S IPO -- PAYBACK TO THE UNION FOR 2008 OR A DOWNPAYMENT ON THE 2012 ELECTION CYCLE? (UPDATED)

12-01-2010 UPDATE: We are now learning from Investor’s Business Daily, that there are several problems with this offering …
“It is interesting to note that the company will not receive any funds from the offerings and, in fact, will deplete its current cash position by an additional $2 billion to complete the deal. All the proceeds will be used to pay its pension obligations as well as repay the U. S. Treasury.”

“At the same time it is depleting its cash by $2 billion and, moreover, in the same disclosure statement filed by GM it notes that it requires over $12 billion in 2010 for engineering and capital spending and $4 billion for debt repayment through 2014.”

Someone invested in a company to use the entire proceeds plus $2 billion more to repay creditors and repay shareholders when the company's need for cash is so great. The lack of logic is concerning. Perhaps a political motive to repay government funds trumped sound business judgment?”

“Despite U.S. government ownership, the red flags are flagrant.”

First, contrary to popular administration folklore, GM did not survive bankruptcy. The name did, but that is all that happened. A new company acquired the name and assets of GM, and is now the company being called GM.

Government Motors = Government Accounting …

"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."

And it could hide additional money transfers to unions and other special interests. Why the Securities and Exchange Commission would allow GM to make a public offering when it openly admits to the lack of controls is staggering. But then again, it is Obama’s SEC.

Wealth Re-Distribution Obama-style …

“The most offensive aspect of the GM profit pronouncement and public offering is the realization that those who owned over $100 billion in debt forgiven and shareholder value lost over the recent decade and during the bankruptcy must bear to see others benefit at their expense. To proclaim a success from such a travesty is difficult to unfortunate at best.”

<Source: CPA Ferrets Out BS In GM's IPO, Insists Ford Is The Real 'Success'>

Original blog entry …
Did this GM IPO contain an Obama payback for previous campaign funds and voter support or merely a downpayment for services to be rendered in the 2012 election cycle?

The Washington Times is reporting the the recent initial public offering appeared to financial benefit the unions over all other classes of debtors – including the American taxpayer who fronted the costs for the bailout and restructuring.

And there is no doubt in my mind that there is an unholy alliance between the democrat party and the trade unions; mostly that of a symbiotic relationship of a parasite to a host –both receiving benefits from the arrangement.

The democrats receiving campaign funding, voter support and employment for out-of-work politicians who serve as consultants and lobbyists for union activities.

And the unions receiving membership recruiting assistance and support for their outrageous work ethic (promotion by seniority, not merit; reduced productivity which favors the collective norm; and outrageous work rules which adds costs and reduce efficiencies).

With the company’s owners and investors paying the freight. As does the public in terms of the increased costs of goods and services to the consumer.

As reported by the Washington Times …

“General Motors Co.'s recent stock offering was staged to start paying back the government for its $50 billion bailout, but one group made out much better than the taxpayers or other investors: the company's union.”

“Thanks to a generous share of GM stock obtained in the company's 2009 bankruptcy settlement, the United Auto Workers is well on its way to recouping the billions of dollars GM owed it — putting it far ahead of taxpayers who have recouped only about 30 percent of their investment and further still ahead of investors in the old GM who have received nothing.”

“The boon for the union fits the pattern established when the White House pushed GM into bankruptcy and steered it through the courts in a way that consistently put the interests of the union ahead of many suppliers, dealers and investors — stakeholders that ordinarily would have fared as well or better under the bankruptcy laws.”

Not so good for the taxpayer …

Through the offering, the Treasury recouped $13.7 billion of its $49.5 billion cash infusion in GM, with another $1.8 billion possible by the end of the year. GM is repaying another $9.5 billion in loans from the Treasury, but that still leaves taxpayers a long way from breaking even.”

Previous GE repayments to the Treasury were found by the Special Inspector General of TARP (Troubled Asset Relief Program) to be nothing more than a repayment from TARP funds – in essence a sham transaction. So why should we believe anyone regarding any repayment to the Treasury?

“The union's health care and pension trust fund earned $3.4 billion through the sale of one-third of its shares in GM last week. Analysts estimate that it would break even if it sells the remaining two-thirds of its shares at an average price of $36 — close to where the stock traded shortly after the offering hit the market. GM shares closed at $33.45 on Wednesday.”

For taxpayers to break even, by contrast, the stock would have to rise to at least $52 and by some estimates as high as $103 — levels that would take years to achieve.”

Protection against price dilution …

“In any event, after selling one-third of its shares last week, the U.S. Treasury has agreed not to sell any more of its GM stock for another six months, while the union fund is free to keep selling its shares.”

The “ very special” White House treatment of the unions …

“The generous share of GM stock given to the union trust fund under the White House deal puts it not only ahead of the Treasury but on a par with secured creditors such as banks, which normally receive the most favorable treatment from bankruptcy courts.”

“Union claims ordinarily do not receive such special treatment in bankruptcies.”

Legitimate investors screwed …

In an “ordinary” bankruptcy, the lawyers are paid first, then the senior preferred debt-holders , then other secured debts are given preference  over other unsecured claims, including those of the union.  And if anything remains, which is unlikely, the shareholders are allowed to recoup a pro-rata share of the carcass.

“Perhaps the biggest losers are the investors in the old GM. None of the bankrupt company's previous stockholders got any money, while the claims of thousands of investors who purchased the company's bonds are still being kicked around in a Manhattan bankruptcy court.”

Spinning …
There are those who claim that this IPO is a great victory for the taxpayer. Not only will the Treasury be reimbursed for its expenditure, but that the taxpayer has dodged paying for the unfunded liabilities that would fall on the Pension Benefit Guaranty Corporation. And that the ordinary pensioner was spared the pain and suffering if GM’s pension liabilities were discharged in a bankruptcy proceeding.

Which is far from the truth as any remaining pension shortfall caused by the mismanagement of any future union-controlled pension funds still will be resolved by the Pension Benefit Guarantee Corporation.

Bottom line …

The entire General Motors’ affair was stage managed by the Obama Administration in cooperation with the unions. Even to the point of setting aside traditional laws protecting secured creditors and failing to protect shareholders by seeking a traditional bankruptcy.

Nothing has changed for Government Motors, they are mostly controlled by their unions and suffering under the dictates of the government. Nothing that will improve their profitability or global competitive posture. In fact, it is believed that only further government subsidies of their so-called “green cars” will prevent another bankruptcy.

And the government continues to pander to the powerful special interests, subverting capitalism to promote Marxist collectivism in our nation.

-- steve

Reference Links …

GM's union recovering after stock sale - Washington Times

General Motors IPO: I smell a rat ... (updated)


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