GM IPO

Posted by Jeff Carter
on November 17th, 2010

GM is going to do an IPO. The Chinese are going to take down 18% of it. One way to repatriate assets into the US without buying US Treasuries!

It is amazing to me that a company that was bankrupt can re-open at 33 bucks a share. If I was a bondholder or shareholder that got run over by the Obama administration in the bankruptcy I might be more than a little peeved.

The Obama administration acted like a Private Equity firm here. But had the full weight of the law behind it. When you own the judges and the bureaucracy it’s pretty easy to get things done.

Michigan’s Democratic Senator Debbie Stabanow was talking this morning on television about how much the workers sacrificed. About the workers-and the middle class. She is full of crap. This GM thing was about unions, unions, unions. Not middle class and jobs. I am thinking that this will be one of the greatest shorts in the history of IPO’s.

If government truly wants to help the middle class, they ought to create a fertile business environment. Set up tax policy to encourage growth, not confiscation. Set up regulatory structures that incentivize business. That’s what is going to help the middle class, not a government handout or hand up.

There are plenty of people around that think government is the answer to problems. The way the Chinese use central planning to advance industry seems like a really good idea to them. Well, the Chinese can get away with it because they are still in a ramp up stage. There is so much potential growth there, people can look the other way. However, eventually central planning falls flat on its face.

They forget that there is literally no system of law in China when it comes to personal property rights. When the party wants it done, it gets done. Payoffs might have to happen in some cases, but the individual knows they better get out of the way. Coase is non existent there.

My fear is that we interpret this whole escapade as a success. In reality it was an abject failure. Capitalism is not risk free. Decisions have consequences. GM should have gone under because their management made some really bad decisions. Then via bankruptcy laws we have in place, the pieces would have been picked up. What the government did with GM is reckless.

It reminds me of the Russians and their takeover of certain industries. The CEO that didn’t bend to Putin wound up penniless in a gulag. The Russian government took over his company, doled out shares to the favored few, re-IPOed it and called it a success.

These are not shining examples of how to run a successful business.

How great can a car company be when their featured car is nothing more than a glorified golf cart?

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