Utterances.net edited by Jalel Harchaoui.
 

20 December 2012

American taxpayers purchased the automotive giant in 2009--how did they do
U.S. Treasury sells GM back to private entities
by Jalel Harchaoui.
On 19-Dec-12, the Treasury Department sells $5.5bn of the taxpayers’ holdings in GM equity at a loss. The move, promised by Romney and now carried out by Obama, is greeted by the business press as a nice Christmas gift from Uncle Sam.
U.S. Treasury sells GM back to private entities

A streamlined train outside a General Motors factory in 1945.

In Feb. 2009, because General Motors had been poorly managed, the federal government stepped in and bought $49.5bn’s worth of GM equity to save the company from extinction.

On 29-May-09, the WSJ reported that ‘U.S. Secretary of Transit Ray LaHood is in Spain meeting with high-speed rail suppliers. Europe’s engineering and rail companies are lining up for some potentially lucrative U.S.-government contracts for high-speed rail projects. At stake is $13 billion in stimulus funds that the Obama administration is allocating to upgrade/build rail networks that could one day rival Europe’s fastest. LaHood is also expected to visit Spanish train-building companies.’

Work-starved General Motor employees possess most of the above skills. Plus, at that particular point in time, the American public owned a controlling share (64%) of the motor-transportation behemoth. Obama’s popularity was still in grace-period mode (political capital at its height). But no. For ideological reasons, it is absolutely imperative that the taxpayer’s $13bn not be used as a clever means to prove that jobs can be fostered on U.S. territory. No.

Under U.S. law, shareholders possess both (i) a claim on dividends; and (ii) control. But even at a time when America’s ordinary population does happen to be the rightful owner of a company like GM, the Law can’t be followed. For reasons of doctrine and deep-rooted contempt for the taxpayer, the American public must not exert control even when it possesses said control. Only the private-investor community along with some members of the firm’s senior management team have a say. Because the owner is the general population, the latter cannot know what’s going on inside GM, why jobs can’t be created on U.S. soil, etc. It is none of the public’s business. GM historically is a private enterprise. Therefore, the public’s task is to provide massive funds when it is almost bankrupt and, then, get out of their face when things get better. In the interim, the American public (after having poured $50bn in equity) must remain passive, and not ask questions about strategy.

Neil Barofsky, the former Assistant U.S. Attorney then acting as a gatekeeper of the bailout money, tried to do his job. The taxpayers’ money “wasn’t all given as a lump sum check, saying, here, all this money’s available to you,” Barofsky explained in Aug. 2010. “They have to sort of report to the government what they’re going to do with the money.” By Mar. 2011, Barofsky was ousted by the Obama Administration (one doesn’t talk that way about the Corporate Sector even when the American public happens to be the majority owner of a gigantic firm).

On 12-Aug-10, GM posted a quarterly profit of $1.3bn, first back-to-back quarters in the black in six years. CEO Ed Whitacre resigned as a means of accelerating the IPO, i.e., the process by which the American public’s stake would be bought back by Wall Street. Now, that the taxpayer’s money had served its purpose, the retiring CEO told Bloomberg News that he is “eager” for the U.S. government to get out of the firm’s capital a s a p. “We don’t like this label of Government Motors,” he said. Who is ‘we’? Enlightening question when the American public owns almost two-thirds of the capital. On 17-Nov-10, out of that 64%, 28% of GM’s equity was sold back to Wall Street: $20bn’s worth of shares at $33 apiece.

The anger at America’s taxpayers continued to be manifested in the media by GM managers. The exasperation was in no small part due to the fact that those managers hadn’t been capable of ensuring the taxpayers broke even. The stock price in the market was still over $20 lower than the $53 needed for the American public to recoup its initial capital. Consequently, only verbal attacks and various ‘political pressures’ could influence Washington into proceeding with the sale against the population’s best interests.

After all, the company, thanks to the State’s intervention, was now back into profitability mode and the share price was still, thankfully, very low: perfect time for private investors to buy the block of equity.

On 19-Sep-12, the private owners of GM asked retired CEO Whitacre (not the current CEO, so as to not be too brazen) to make an announcement in the press. “It’s time for the Treasury to step out of the way,” the retiree asserted. The U.S. government must “sell every last GM share it owns,” former CEO Whitacre demanded authoritatively in a op-ed (WSJ, 19-Sep-12). No argument as to why exactly was offered.

Today, ‘now that the election has passed’, the Federal Government sells another $5.5bn at a price of just $27.5 apiece to GM. That decision to sell again at a loss was made arbitrarily by Obama, Geithner and Co., in accord with the promise made by failed candidate Mitt Romney. From the private investors’ standpoint, a sweetheart deal indeed: it was saluted by the business press as ‘a nice Christmas gift from Uncle Sam today’ (WSJ online radio, 19-Dec-12). One can ask the ordinary American whether they are aware of what the Obama Administration ordered in this period of high distraction.

At this stage, the American public still owns $21bn’s worth of GM equity.

For the American population to break even, the GM stock price must go as high as $69 now, i.e. it has to rise by 150% from current market levels. The probability of that happening is zero. The overall loss on the bailout is bound to amount to over $12bn.

One of the possible reasons offered by Big Auto commentators for Washington being ‘forced’ to sell early was that “the Government remaining in GM’s capital hurts the carmaker’s image in the mind of consumers.” It will be much better in terms of “the image in the mind of consumers” if the Government’s stake continues being sold at a generous loss for the American population.

This—whatever ‘this’ is—has strictly nothing to do with free-market capitalism. It is shameful; so many viable jobs in America could have been created and preserved for bullet-train-construction purposes. The corporate media offer all of the data for the ordinary citizen to mobilize in a knowing, informed fashion. This is a free, open society with a legacy of democratic equipment. It is not Communist China. The general population, by organizing and being vocal could combat the cynical, overt assault on American society by the Corporate Sector. But then again, those folks deserve credit. They are rational, transparent and candid about what they are up to.

To the reader who wonders why the probability of the GM stock rising substantially from $30 is zero: The reader should just imagine the marketplace hearing that (i) a hedge fund owns $21bn’s worth of a given stock; and (ii) the hedge fund won’t behave in an economically rational fashion: it will be ‘forced’ to sell the whole $21bn within the next 12-18 months. Would one buy the stock in such a situation . . . or just wait?

~ Jalel Harchaoui.