Friday, November 19, 2010

Taking stock in GM ...

This week marked the return of General Motors ... at least to the stock market.  In the summer of 2009, GM entered into Chapter 11 Bankruptcy to save itself from a complete failure, which would have resulted in a catastrophic loss of thousands of jobs across the country in various factories, dealerships, etc. 

To reorganize itself, GM made several difficult decisions, including either selling or stopping production on several lines of cars, notably Hummer, Saturn and Pontiac.  Along with trimming back the product line, GM was provided with one of the controversial "bailouts" from the United States federal government and various foreign governments -- providing the auto giant with an infusion of tens of billions of dollars. 

Approximately one month after moving into bankruptcy, the trading of GM stock on the market was halted.  Those who held shares in GM were left with a worthless stock, both average shareholders and stock speculators (who had been attempting to buy up large blocks of GM cheaply in the hope the stock would not be pulled from the market, despite warnings to the contrary).  Normally, I would not be inclined to feel much sympathy for those who held stock in GM.  Investing is never without risk and even the average citizen knows that much. 

This situation, however, is anything but typical.  General Motors was not permanently insolvent -- they were provided with American tax dollars to resurrect themselves.  Those holding GM stock had their tax dollars taken from them to save a company they will now have no ownership in.  Does this strike anyone else as wrong?

Since their restructuring, GM has paid back a significant portion of their government money and yesterday, presented their new stock's initial public offering at a price of $35 per share.  The IPO raised over $20 billion dollars from investors.  This is a far cry from GM's last stock prices back in July of 2009, where a share was hovering around $1. 

President Obama told reporters, "Today, one of the toughest tales of the recession took another big step toward becoming a success story."   The president is correct in many aspects.  The federal government, General Motors, its employees, car dealers, the economy are all winners in this.  The success of General Motors is good for America and the bailout was the correct course of action. The car business provides too many jobs for it not to succeed, saying nothing of the large number of industries interconnected with automobiles.

Everyone wins -- except former stock holders.  The company they invested in was saved by their taxes, but they are not compensated in the least and no one seems to care.

1 comment:

  1. I think the problem is deeper than people not caring. I haven't even really thought about this, because it wasn't covered thoroughly by the news. Sure, I was vaguely aware of the existence of the problem, but that's probably not enough. I'm sure it's out there and I'm sure I've read it sixty or seventy times, but there's a huge difference in me reading information and having Brian Williams feed it to me on the Nightly News. Sure, that doesn't keep society's better informed from learning about what's going on in the world, but Joe Public (who, as you said, is footing the bill of this whole thing) only does so much of his own research.

    I don't mean to insinuate that people who invest in the stock market don't do research; I'm sure their decisions are made to the best of their abilities. But how many people who don't directly invest in the stock market's lives are affected by those who do? And how have those who have invested in GM and now lost all that money affecting those they do business with, even the people that didn't invest?

    I guess we'll never know, just like most Americans.