GM IPO Continues Trend of Rewarding Those Who Failed

What do the General Motors and the nation's big banks have in common? They've both been bailed out by the federal government and, were it not for government largess, neither would be here today celebrating the automaker's largely successful stock offering.

It's an irony that has escaped most of the media amid all the hoopla over GM's "initial public offering," which is an odd way to describe what is happening now regarding GM's return to the public markets. IPOs, of course, are usually reserved for relatively new companies that have created new products or services in such a way that investors see promise in their future.

GM, on the other hand, is a washed up maker or inferior cars. Its laundry list of problems -- from failing to compete with Japanese brands to a bloated work force -- pushed the company into bankruptcy in 2009, from which it emerged only after a $50 billion bailout from the government.

Thanks to yesterday's stock sale, GM is about 2/3 the way through paying back the money it owes the taxpayer. The rest is expected to be paid back over the next few years.

So far, it's unclear if the taxpayers will benefit from any of this; now stripped of many of its liabilities and flush with government handouts, GM is marginally profitable again. The stock opened at a healthy $33 a share (it "popped" on the opening a couple bucks before coming down a bit in price). But some analysts say it will have to double in value over the next year or so for the taxpayer to be made whole.

While it's unclear whether taxpayers will make money out the GM fiasco, it's pretty clear Wall Street already has. Yesterday's rally in the stock market was attributed to strong demand for the IPO of a company designated Too Big To Fail. Traders who managed to get their hands on the new GM shares were "flipping" them or selling them sometime after the market opened, which is why the price shot up at the opening before settling down as investors took profits on the initial run up.

Even worse were the fees raked in by the big Wall Street firms that underwrote the stock issue. Let's not forget that GM has company on the government's Too Big To Fail list, and it's the big Wall Street firms like Morgan Stanley, JP Morgan, Bank of America, Goldman Sachs and Citigroup, the top underwriters of the deal. Combined, the banks received $135 billion in bailout money during the 2008 financial crisis, and that doesn't consider the countless billions they received through guarantees and other subsidies over the past two years.

They are said to split a little under $120 million in fees, which we are all told is low compared to some other corporate deals.

Recently some people at the Wall Street firms have complained not just about the relatively low fees but also about the fact that they had to split those fees with several minority-owned firms, which also have positions in the underwriting group. These outfits, of course, received a much smaller portion of the deal, so they made less money than the big firms. But executives at the large banks noted that many of the minority firms and their executives have made political donations to President Obama, which given the government's ownership stake in the company, accounted for their presence on the deal.

Give me a break. The saddest part about this nonsense is that it actually made its way into the deal's coverage by a financial news television station (hint: it's not the one I now work for now). Why is it such nonsense? Aside from the fact that many of GMs' employees are in fact minorities, that all of the big firms in the main underwriting group were also big contributors to the Obama presidential campaign (for more on this check out my new book Bought and Paid for), or that in just one example of political cronyism, Tom Nides, the No. 2 executive at lead underwriter Morgan Stanley has been appointed for a top position in the Obama White House, not one minority-owned firm needed a bailout in 2008.

In other words, maybe it should be the minority-owned firms running the deal instead of the likes of Morgan Stanley and Goldman Sachs?