Thursday, November 18, 2010

General Motors: The Latest, Greatest Tim Geithner "Success" and a Quarter-Billion in Commissions for Wall Street

Steve Stanek, managing editor at Budget & Tax News asked me to write down a few thoughts on the record breaking General Motors IPO, and also what it will mean to taxpayers. This is what I sent him:

Hi Steve,

My first thought is that I wonder what the initial GM bondholders, before the re-organization, think, who were forced into settlements instead of getting their day in bankruptcy court. If you want to go with the fiction that this was a true turnaround that could be completed so quickly, then a severe injustice was done to those bondholders who did not receive 100 cents on the dollar.

In truth, we now live in a world of Salvator Dali economic policy, where the government pulls out a new canvas for each crisis, and they start painting with mad strokes.

Because of this mad painting, we now have a very manipulated economy. I note for example that the money expected to be raised in the GM IPO, $23.1 billion, matches up almost exactly with the amount of money Ben Bernanke has pumped into the system so far with his QE2 monetary expansion.

If there are any taxpayers excited by this, I would like to sell them a fog machine I invented in San Francisco. It's all hocus pocus. Without Bernanke money printing, this deal would have never gotten done. The only thing it will really mean for taxpayers is another form of tax, the inflation tax. All the data I watch indicates that food, clothing and energy prices are about to explode as Bernanke's newly printed money gets into the system.

Sadly, government PR is slick and few will understand how to connect the dots to realize that they will be paying for this show by the coming price inflation at the grocery store. Within days, I fully expect Treasury Secretary Geithner to add the "success" of the GM IPO to his list of all the magical things he has done for the economy. He won't mention the high unemployment rate or the coming inflation. A whole lot of casual observers will buy the Geithner fiction, many more than those who willwhere the money is coming from for this latest, greatest Geithner "success".
Of course, the real success for Geithner on this deal will be how much commission he shovels to his Wall Street cronies.
Naturally, Morgan Stanley and J.P. Morgan, BofA Merrill Lynch, Citi, Goldman, Sachs & Co., Barclays Capital, Credit Suisse, Deutsche Bank Securities and RBC Capital Markets will be the joint book-running managers for the offering. Commissions on this deal will be roughly a quarter billion dollars.

1 comment:

  1. The tragedy is the end of the Rule of Law.

    The stiffing of the bondholders (and the pension holders) in the GM Bankruptcy and the soon to be finalized stiffing of the foreclosed mortgage holders are but two of the signs - no evidences - that an era of Anglo-Saxon Common law is at an end.

    But let us revel for a moment in the delight that suffuses our body at the words of the present GM head who announces that GM would not have been profitable if it had not been able to shed the debt of its prior incarnation.


    I would love to hear from some lawyer expert in this area of the obfuscations and interpretations of penumbras of penumbras that allowed judges with a straight face to let the GM matter proceed.

    But I suspect that at my request I would only hear silence.

    Lawyers do not betray their craft.

    They may have entered the profession as idealists of a sort eager to be a part in the upholding "The Law" but soon (two years or so) they realize that they have to make a living. This entails getting along with the other lawyers and judges.

    I have the happy ability to take Lawyers beyond their surface opinions of their craft and have obtained from them their opinion that 'there is no law anymore'. That it is made up by the Judges as they go along.

    I myself have first hand experience in the law clearly stated in the statute books being disregarded by several levels of courts ...

    Now take this to the highest level and you have ...

    So it's all gamed and political (see GM) but only above a certain level. Note that when the 'mundanes' (from Will Grigg in another context) begin Gaming they learn that they cannot or are not allowed to. This is because they do not have the political clout (see the soon to be Mortgage agreement).

    Below a certain level we must understand that we are not citizens but subjects.

    So the future ambitious will not play by the rule of the Law or the rule of the Market but instead they will play by the (everchanging) rules of the political Game.

    This is the very definition of a third world economy. It is not to come upon us. It is already here.

    Nothing is hidden anymore. We now know who our masters are.

    One statistic that focuses the mind wonderful-like ...

    If all the bailout money had been taken and applied ... all the mortgages in the country could have been paid off.

    Don't you think that that would have had a 'stimulative' effect?

    Instead it was sent to the Masters of the Universe to save their asses and ensure their bonuses.

    And to ensure the flow of Capitol and Power to the Oligarchs above them ...

    And so in analogy to the words of Billy Budd at the end of Melvilles short story ...

    Farewell oh Rule of Law ...