Tag Archive for 'TARP'

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

Economic recovery and the banking industry

One of the most significant shifts that resulted from the current economic gyrations is in the banking industry. Of course, we’ve all witnessed the consolidation of the national banks. Perhaps you’ve even paid attention as some of the 2nd tier banks have either failed, been absorbed by a bigger fish, or in some way had to make major adjustments in their business model.. In the words of the Borg, “Size is irrelevant; resistance is futile; all will be assimilated.”

One of the pieces of advice I’ve given small business owners for over 11 years now is to make sure at least one of your banking relationships is with an independent community bank (a/k/a locally owned and operated). If you’ve followed this advice and have maintained a good working relationship with that bank, your small business probably can borrow what it needs to get through this rough spot. So far, the independent banks – which did not put sub-prime mortgages on their books and aren’t lined up for government bailout money – have seen very little change in the way they do business with their small business customers.

Regardless, every small business owner should become more attuned to adjustments in the national banking environment, especially over the next couple of years. There will be changes, at a minimum with regard to regulations, at all levels of the banking industry.

Today I interview on my radio program bank economist from National City and Brain Trust member, Richard DeKaser. We discussed the banking landscape and of course, the economy. Richard always has thoughtful and valuable insights that are worth listening to, which you can do by clicking the link following this paragraph. But first, remember what I’ve always told you: An uninformed banker is a scared banker, and no one ever got anything out of a scared banker. So take your banker to lunch this week.




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