Well, they've priced the GM IPO, and it looks like they've valued the firm at just about what we lent it: $50 billion. Since the government only took a 60% stake, that's well below what would be needed for the government to recover its investment. Even with the billions they've already "paid back"--by not using all the money--Uncle Sam needed the company to be worth more like $70 billion to break even on the bailout.
IPOs are usually priced at a discount, in order to ensure that a lot of buyers are interested; this creates a robust, liquid aftermarket in the stock, so that if the company needs to go raise more capital, there will be lots of buyers and sellers. But even if you think that the price will go up in the aftermarket, the government is going to take a hefty 30% loss on the $10 billion worth of shares that will be sold in the initial public offering.
Moreover, the big block of stock that the government still owns will put some downward pressure on the price in the aftermarket. Everyone knows that the government is going to want to get rid of the remainder of its shares sooner rather than later, which means that secondary offerings will follow in fairly short order. Unless GM turns in some pretty spectacular profits, it looks to me like the government is going to lose at least $10 billion on this deal.
So can they turn in those profits? Mickey Kaus called me a "cheap date
" for visiting GM and deciding that maybe the bailout wasn't such a bad idea after all. But that wasn't quite what I said: I said that with the competitive advantages conveyed by the bankruptcy, the company was probably viable; and that the bailout wasn't the worst thing the government had done in the past two years. I think both those statements are true!
But that is not an endorsement of the bailouts, which remain an expensive boondoggle. We could have given every autoworker $100,000, offered retraining and relocation assistance to tens of thousands of employees at their suppliers, and still come out ahead on this deal. Had we done this, we would have helped eliminate some of the overcapacity in the global auto industry, and sent a clear signal to CEOs that they should not emulate Rick Wagoner's pigheaded refusal to prepare for a possible reorganization.
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is a columnist at Bloomberg View
and a former senior editor at The Atlantic.
Her new book is The Up Side of Down