Tag Archive for 'bankruptcy'

You aren’t invited to GM’s IPO party

Okay, let’s review a few events before I tell you about something that will make you want to take a hostage.

A. The federal government (read: politicians) pledged $700 BILLION of taxpayer money (read: yours and mine) to bail out Wall Street in 2008. According to many experts, this had to happen because Wall Street had so abused the securitization marketplace that we were teetering on the precipice of a full-blown economic depression.

Here’s how Wall Street fared after the bail-out: The bonus pool for Wall Street was $100 BILLION in 2007, the year before the bail-out. One year after, in 2009, the Wall Street bonus pool returned to $100 BILLION.

If you’re scoring at home, that’s Wall Street: HUNDREDS-of-BILLIONS / Taxpayers and small business: The Bill.

B. After decades of reckless contract concessions to unions and incredibly stupid management practices, General Motors goes hat-in-hand to the federal government for a bail-out in 2008. Those same politicians mentioned above committed approximately $50 BILLION to bail out GM and UAW.

Part of the rationale was to save “hundreds of thousands of jobs (read: union jobs). Meanwhile, small businesses across America had to lay off millions of their employees just to keep the doors open.

Scoring again: GM and unions: TENS-of-BILLIONS / Taxpayers and small business: Zilch.

So, here we are almost two years hence and GM has emerged from bankruptcy with the help of our tax dollars. In fact, GM is doing so well now, that they are making a profit and, full disclosure, have begun repayment on the bail-out.

GM is also about to go public with an initial public offering in the next few days. Because it has now become a more efficient and financially stable operation – thanks to you and me – the stock is expected to very quickly increase in value from the initial offering price. This means anyone who purchases the stock at the IPO price stands to make a tidy profit very quickly.

Now for the part that will make you want to take a hostage: You and I – regular retail investors who bailed out Wall Street and GM – aren’t invited to this party. As it stands at this writing, only wealthy investors and investment firms (read: Wall Street) will have access to IPO shares. Regular folks won’t be able to purchase the new GM shares through their accounts with Fidelity, E-Trade and the like.

Final score: Wall Street & GM: Bailed out and richer / Regular folks: The back-of-the-hand.

Here’s my proposal: The first day of the GM IPO, no institutions or highly-connected, rich investors can buy GM shares; only regular “retail” investors can buy GM shares. We would have all of the first day to buy as much as we want. The second day is open to everyone.

The U.S. Treasury Department could fix this if they wanted to - but if the average taxpayer is foreclosed from purchasing GM stock on the first day at the IPO price, we will witness another blatant example of collusion between Wall Street and Washington at the expense of regular folks on Main Street.

Recently on The Small Business Advocate Show, I talked about the GM IPO issue as well as the bail out of GM with two of my favorite financial Brain Trust members: Gary Moore, founder of The Financial Seminary, a non-profit ministry, to build bridges between the financial and moral communities; and Bill Dunkelberg, Chief Economist for the National Federation of Independent Business. Please take a few minutes to click on one of the links below and listen … as always, leave your comments.

Why aren’t you and I invited to the GM IPO party? with Jim Blasingame

America’s ability to work out of an economic downturn with Gary Moore

Two experts debate the government bailout of GM with Gary Moore and Bill Dunkelberg

How GM’s bankruptcy could become a cautionary tale for small business

At the beginning of each year I publish my predictions for that year. This was one of my 2006 predictions:

“Prediction: At least one U.S. car manufacturer will file Chapter 11 bankruptcy. It will probably be GM. All three have too much 20th century employee benefits baggage to be viable in the 21st century global marketplace. The other two will follow.”

Turns out my vision was pretty good, if not my timing. After 101 years of operation – for decades the largest automobile manufacturer in the world, and one of America’s great industrial success stories – General Motors succumbed to what I believed was inevitable over three years ago and filed for Chapter 11 bankruptcy protection.

Chrysler, also once a venerable industry force, had in recent years taken a circuitous route from a publicly traded company, to being acquired by Daimler Benz, then a private equity firm, and finally, on April 30th of this year, went into Chapter 11. One of the main reasons Ford hasn’t filed for bankruptcy, nor took government assistance funds, as GM and Chrysler did, was because it raised capital from mortgaging many of the properties it owned, which old Henry had paid for decades ago.

It’s important to remember that the so-called Big Three represent the remaining American car companies, not the entire U.S. automobile industry. While the other companies, represented by foreign owned firms that have established factories and successful distribution in the U.S., are not exactly thriving in the current economy, none are in peril of failure.

So what sets the two auto industry groups apart? Primarily two things unique to the Big Three: 1) Bad management; and 2) United Auto Workers Union (UAW).

Bad management can be replaced with good management. Indeed, this has happened with the foreign companies from time to time, and could have happened in Detroit. But the one thing the Big Three couldn’t overcome was the current and residual baggage imposed by generations of unsustainable wage and benefits concessions in the UAW contracts.

At the very moment that two of the Big Three are experiencing the most ignominious circumstances for any company, bankruptcy – fully half of which blame must be laid at the feet of the UAW – there are lawmakers pushing a bill that would increase the ability of unions to organize more easily in smaller and smaller businesses. Without any sense of irony, Congress is bailing out one union-laden industry, while trying to make forming unions easier. It’s a story that would be perfect in a Bizarro World comic book.

The bill in question is called the “Employee Free Choice Act” (EFCA). This is a misleading title, because one of the markers of this bill is to remove the secret ballot provision, long required by labor laws, and replace it with the ability for a union organizer to push a ballot in front of an employee and require them to vote in front of them. There is more bad news for small businesses in this bill, but isn’t imperiling the sanctity of the secret ballot, a hallmark of America, enough to oppose this legislation?

If the Employee Free Choice Act ever becomes law, the following year I will be forced to include this in prediction: “Hundreds of thousands of small businesses will make these three unnatural management decisions in reaction to the EFCA: 1) off-shoring jobs; 2) limiting growth of the business to keep them under the number that EFCA allows; 3) and some will just close up rather than unionize, knowing that to do otherwise would merely prolong the inevitable experience of GM and Chrysler.”

Recently, on my small business radio program, The Small Business Advocate Show, I talked about the EFCA and the dangers it poses for small business. Take a few minutes to listen, and be sure to leave a comment.

Warning: fsockopen() [function.fsockopen]: php_network_getaddresses: getaddrinfo failed: Temporary failure in name resolution in /var/www/wordpress/wp-includes/class-snoopy.php on line 1142

Warning: fsockopen() [function.fsockopen]: unable to connect to twitter.com:80 (Unknown error) in /var/www/wordpress/wp-includes/class-snoopy.php on line 1142