GM IPO gives little reason for celebration
Now you too can directly own a piece of Government Motors:
General Motors Co shares gained as much as 9 percent on Thursday as investors bet that the top U.S. automaker can make a lasting recovery after repaying a big chunk of last year’s government bailout with funds raised in a landmark initial public offering. The start of trading in GM shares represents one of the final steps in a blockbuster initial public offering negotiated by the Obama administration that raised $20.1 billion after pricing its common and preferred shares.
Obama administration officials said the strong market debut for GM showed they made the right choice in restructuring the auto maker with $50 billion in financing. “This is a bit better than people had been projecting. As to a year ago, it’s not even in the same ballpark,” Ron Bloom, the U.S. Treasury official in charge of the GM investment told Reuters Insider. “A year ago, people said ‘you have no exit, you have no strategy. This company is not fixed.’”
The point is not whether government can revive, at least temporarily, a floundering company by sinking into it billions of taxpayer dollars and trampling hundreds of years of contract law. As with TARP, it’s all about opportunity cost and unintended consequences. What else could have been done with that money? How does it incentivize companies to treat risk? What sort of uncertainty does it create among business and bondholders? The answers: Much, recklessly and vast.