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Thread: BP takeover fears as shares plunge

  1. #21
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    Re: BP takeover fears as shares plunge

    Now you are really going off into never/never land. You implied that the $60B was spent money... gone, lost forever. I countered with not only is that money going to come back, but the government stands to make a nice profit. Are you that binary that you need to win the argument of the profit to prove your point that it was all lost? You can accept my post as "gee, the $60B spent on GM/Chrysler was really only ____ B (fill in your own small number) and be happy, or accept the fact that it may be profitable. I don't care. But believing the government pissed away $60B on the auto industry is just incorrect.

    Ok, to answer you specific points and walk through this, without getting to goofy about the details as my main point is this was a near break-even to good deal for the US stands:


    Let's see....

    From Morgan Stanley, JPMorgan Chase reportedly in lead for GM IPO - Jun. 11, 2010

    "....GM shares would need to have a market value of $69 billion in order for Treasury's common shares to recoup their portion of the bailout money. Numerous analysts last month estimated GM's total market value at between $64 billion and $90 billion...."

    From General Motors bailout details - Lynn Sweet

    " The U.S. Treasury is prepared to provide approximately $30.1 billion of debtor in possession financing to support GM through an expedited chapter 11 proceeding and transition the new GM through its restructuring plan. The U.S. Treasury does not anticipate providing any additional assistance to GM beyond this commitment. In exchange for funds already committed by the U.S. Treasury and the new injection of $30.1 billion, the U.S. government will receive approximately $8.8 billion in debt and preferred stock in the new GM and approximately 60% of the equity of the new GM. The U.S. Treasury will also have the right to appoint the initial directors other than those that will be selected by the VEBA and the Canadian government."

    This document was the most precise that I found on the actual deal structure. Unfortunately, it was a bit prospective. The point is that the US government owns at least 60% of the equity (this was substantially confirmed with the Washington Post article. I actually found slightly higher numbers, probably with the old debt coverting to a sliver of equity but lets stick with the 60%)

    OK... if analysts peg the enterprise value of GM between $64 and $90B, then the government's 60% share of that is between $38.4B and $54B. Additionally, the $7B of debt was paid back with interest in April 2010.

    I did have a difficult time figuring out exactly what was invested in GM. The best I could find was $50B, including the $7B of debt. If you deduct the $7B from $50B, you have $43B remaining.... so, that places the low end of the current projected market cap in a small loss position $4.6B (not including interest earned on the debt) and the high end in a modest profit position $11B. Ok, so I rounded the investment of $40B and called it zero to $14... the actual dollar amount isn't the point. The point is that its generally break-even to a small profit. What is crazy is that you its all lost, and now quibble about the amount of the profit....

    It does not include the clunker program, as that was not a GM bailout issue. That is part of the overall economic stimulus.

    As for the liabilities of $65B that evaporated into thin air....wow, you really have me on my heals with that one. Its a bankruptcy!!!!! That is what happens. I am speaking specifically about the government's investment in GM, not all ills with America (yes I cited saved jobs as a collateral benefit). Most of the right wanted a GM / Chrysler bankruptcy without government help. What would that look like? My guess is the $65B evaporation would have been magnitudes larger. Chrysler at least (and maybe GM) would be gone. In 2008, wealth evaporated from everyone. There was no question that GM and Chrysler were in serious trouble, something had to be done. What the GM/Chrylser bailout attempted to do was to work with that to stabilize a very important foundation of our economy to minimize damage. It worked. Those that lost the $65B will likely more than re-coup it in continued business with two viable companies. Again, that is the way bankruptcy is suppose to work.

    As to money dumped into auto industry financing arms.... I do not know that issue particularly, except that GMAC has seemingly made a nice comeback as Ally. I don't know from one vantage point you argue that none will come back (perhaps the same vantage point that $60B was lost on the auto industry). We can both research that one and argue that one another day.

    Back to the point: The GM salvation deal looks like a good one for the US government.

    BTW. The Rattner article in the Washington Post does not speak to recovery via IPO. In fact, he offers no support for his $40B current government value. I used that article to support the overall theme of my argument.
    Last edited by upsideguy; 06-12-10 at 01:19 AM.

  2. #22
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    Re: BP takeover fears as shares plunge

    Quote Originally Posted by upsideguy View Post
    Now you are really going off into never/never land. You implied that the $60B was spent money... gone, lost forever. I countered with not only is that money going to come back, but the government stands to make a nice profit. Are you that binary that you need to win the argument of the profit to prove your point that it was all lost? You can accept my post as "gee, the $60B spent on GM/Chrysler was really only ____ B (fill in your own small number) and be happy, or accept the fact that it may be profitable. I don't care. But believing the government pissed away $60B on the auto industry is just incorrect.
    Where did I say it was gone forever? Reread my post.

    I'm well aware that our money was invested and that we own a stake in the company. My point is that your sources don't exactly seem to say what you're claiming they do.

    Let's see....

    From Morgan Stanley, JPMorgan Chase reportedly in lead for GM IPO - Jun. 11, 2010

    "....GM shares would need to have a market value of $69 billion in order for Treasury's common shares to recoup their portion of the bailout money. Numerous analysts last month estimated GM's total market value at between $64 billion and $90 billion...."
    Again, that's a paper value, which doesn't exactly convert 1:1 to market value, especially when it will take years for the government to unwind its position. The sentence right after that quote:

    But it may prove difficult for GM to reach that value. The company's peak market value was $61.3 billion in May of 1999, according to research by the Center for Research in Security Prices at the University of Chicago.
    You're also ignoring the $17b that was sunk into GMAC, which is not coming back.

    From General Motors bailout details - Lynn Sweet

    " The U.S. Treasury is prepared to provide approximately $30.1 billion of debtor in possession financing to support GM through an expedited chapter 11 proceeding and transition the new GM through its restructuring plan. The U.S. Treasury does not anticipate providing any additional assistance to GM beyond this commitment. In exchange for funds already committed by the U.S. Treasury and the new injection of $30.1 billion, the U.S. government will receive approximately $8.8 billion in debt and preferred stock in the new GM and approximately 60% of the equity of the new GM. The U.S. Treasury will also have the right to appoint the initial directors other than those that will be selected by the VEBA and the Canadian government."

    This document was the most precise that I found on the actual deal structure. Unfortunately, it was a bit prospective. The point is that the US government owns at least 60% of the equity (this was substantially confirmed with the Washington Post article. I actually found slightly higher numbers, probably with the old debt coverting to a sliver of equity but lets stick with the 60%)

    OK... if analysts peg the enterprise value of GM between $64 and $90B, then the governments portion of that is between $38.4 and $54B. Additionally, the $7B of debt was paid back with interest in April 2010.

    I did have a difficult time figuring out exactly what was invested in GM. The best I could find was $50B, including the $7B of debt.
    Look at your own link:

    So the question is not so much whether the bailout will succeed, but how it stacks up against the alternative, which would have been to let GM go into bankruptcy without government assistance. First, we would have saved not only the $56.7 billion official price tag of the bailout, but also the $17 billion in TARP funds poured into the restructuring of GMAC (GMA), the finance arm of GM, as well as other items that may leave little change from $100 billion.
    It's certainly more than $50b, however you want to look at it.

    It does not include the clunker program, as that was not a GM bailout issue. That is part of the overall economic stimulus.
    It was a direct subsidy to auto manufacturers.

    As for the liabilities of $65B that evaporated into thin air....wow, you really have me on my heals with that one. Its a bankruptcy!!!!! That is what happens. I am speaking specifically about the government's investment in GM, not all ills with America (yes I cited saved jobs as a collateral benefit).
    I'm well aware of the difference and of what happens in a bankruptcy. My point is that you don't get to pretend like the government is "making profitable investments" in the market simply because it uses its regulatory authority to force private investors to take a loss.

    Back to the main issue: The GM salvaltion deal looks like a good one for the US government.
    And again, I just don't think the facts support that.

    If we turn a profit on this, I'll be happy as hell. I just don't really foresee it happening, once you take into account all the other factors.

    The Washington Post article is a completely different analsis of this, which does not get into the whole IPO approach. In fact, Rattner does not speak at all about where the $40M comes from
    And yet he was Obama's Car Czar in charge of restructuring the entire industry. What does that say?
    People sleep peaceably in their beds at night only because rough men stand ready to do violence on their behalf.

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