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

One Response to “You aren’t invited to GM’s IPO party”

  1. 1
    Gary Moore Says:

    Jim:

    As a member of your brain trust, I rarely disagree with you. And I can tell you are passionate about this. However, as I stated on air a few minutes ago, I must disagree with you on this one. Worse, I think you may be making two mistakes and hoping it adds up to one good.

    The taxpayers did not bailout GM. Most resisted it with passion. labeling it “Goverment Motors” and calling the president a “socialist” over it. Obama, and the Democrats in congress more particularly, took a hit for doing so. And now that the IPO is six times over-subscribed, we want to profit from it, simply because the government used taxpayer money for the bailout. Yet no small businessperson believes the taxpayer deserves equity in his or her business simply because the SBA used taxpayer money to put him or her in business.

    It also doesn’t make sense from Wall Street’s perspective. To be honest, I have had very few retail clients call since the crash to voluntarily buy stock. They’re all still pretty much bunkered down in T-bills and so on. But again, when a hot stock comes along, we expect to participate. Yet during the thirty years I’ve been on Wall Street, it’s always worked on the principle that clients who do steady business always get the lion’s share, even all, of any hot IPO. I’m not saying that’s right, or fair, particularly in this case, but it is tradition.

    So whether you look at the GM IPO from the perspective of fairness or tradition, the retail investor, or taxpayer if you will, has little to stand on in this deal. More importantly, this may indicate we need to get over some of our political anger towards Washington and get on with the business of life.

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