Sunday, August 28, 2011

The U.S. Treasury Is Killing GM's Stock Price

General Motors (GM) has had 5 profitable quarters and the company looks to be stable. Unfortunately, for the taxpayers, that profitability came at a cost of nearly 50 billion dollars in infused bailout monies that were ultimately converted into GM stock. Now, the American taxpayers own one-third of that company's total shares of common stock; causing many to refer to GM as "Government Motors."

But, in order for the taxpayers to recoup its "investment" in GM, the stock price has to soar to nearly $134 per share (Click here to See the Wall Street Journal Story: U.S. Must Sell GM Shares at $133.78 to Break Even). Since coming public at around $30 a share, General Motor's stock price has done nothing but fall. This week saw an all-time low of $21.18; with the final closing price for the week at $22.87. Obviously, this is one pig that not even lipstick can help.

With the most recent profits being almost double that of the previous year, you would think that GM stock would have gone higher; but, it fell instead. You see, the investment community knows that, at some point in time, the U.S. Treasury is going to have to sell that one-third interest and, when they do, they will flood the stock market with huge sell orders against GM stock; dramatically driving the share price down. So, in an odd way, it's the bailout money and the Treasury Department's ownership of stock that are actually killing GM's stock price and preventing the U.S. taxpayer from recouping its cost to bailout the company.

Obviously, this is just another example of why governments should stay out of the business of trying to fix something that is broken. Think of it as a takeoff on the old saying of the "blind leading the blind." Except, in this case, it was the "broken leading the broken." Clearly, General Motors should have gone through a normal, non-governmental aided bankruptcy. Instead Obama got involved. Never once do the academic technocrats of a bureaucracy ever understand the long-term implications of their actions because they just don't have any real-world experience. All they ever have is untested, academic theory. The Obama Administration -- mostly populated with academics -- clearly didn't see this not-so-little complication coming when they decided to bailout GM in a government-assisted bankruptcy; an effort that was solely and ideologically intended to benefit and protect Obama's election and reelection benefactors, the United Auto Workers (UAW) labor union. As a result, you and I, the taxpayers, are going to eventually take the pipe on what Obama seems to think was such a great success.

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