GM’s IPO: The Sub-Prime Sequel

We wrote four months ago about the patently false and fraudulent statements being made by Obama’s General Motors and Obama’s Treasury Secretary in order to prop up the illusion that GM was turning itself around. Using government-supplied funds to pay off government-supplied debt financing does not amount to a legitimate earnings-based rebound, and it is criminally fraudulent to suggest otherwise.

Here’s what we wrote then:

“…the elitists in Washington and the gutless GM executive team that is doing the government’s bidding have convinced themselves that this kind of transparent lying will fool the American people and is in the best interests of the American people, of GM and of the government.

Lying like this never serves the interests of anything good; it just begets more and bigger lying…”

Right on cue, we now have a GM initial public offering, or “IPO”, in the works, whereby the company will try to raise capital from private sector investors to help further pay down the government debt. The rosy turnaround scenario has set the stage.

But of course the rosy turnaround scenario has already been shown to be falsely propped up. And now we find in the GM IPO ‘disclosure’ documents this little gem:

“"disclosure controls and procedures and internal control over financial reporting are currently not effective…[and this]…could materially affect our financial condition and ability to carry out our business plan."

Give someone at GM credit for at least making these truthful statements. But however legalistic and sophisticated the words may sound, there is a simple message embedded in them: “what we’re telling you about GM’s condition is likely bogus”.

In a country where honor has been restored, there is no chance whatsoever that GM’s IPO or any other company’s IPO could go forward with reputable investment bankers managing it, and reputable investors investing in it—and with statements like that about the status of its fundamental proxies for integrity: its disclosure controls and procedures and internal control over financial reporting. No. Chance. Whatsoever.

What we really have in front of us is the sub-prime crisis re-enacted for all to see in the GM IPO. How so?

We know what happened in the sub-prime mess. The real estate brokers didn’t care whether a house of cards was being built; they were earning big commissions on flip sales. The appraisers didn’t care; business was booming. The mortgage lenders didn’t care about creditworthiness of their borrowers; the whole thing was a government-directed social program. Wall Street didn’t care if a collapse was inevitable; they could package and sell mortgage-backed securities and make their millions in fees and enjoy them, and worry about the mess later (they could even buy off a few politicians in designing the new legislation that would assure everyone that they had cleaned up the mess). The whole thing reflected a systemic collapse of integrity, and the fall of it was as easy to predict as the fall of any house built on sand.

The GM IPO is a government-staged financial shenanigan designed to make the Obama government look good in and around the time of the November elections. It is being done for propaganda reasons, not for solid and responsible business reasons. The actual automobile business of GM may be better than it was at rock bottom, but it is not a healthy company. But once again, we have a gathering of DC elitists in Washington and on Wall Street collaborating to pull this off ‘for the good of the people’. A few in each place will know full well that this is another big lie, but political pressure to move it through and make Obama look good will be overwhelming. “As American as GM and apple pie” will be trotted out as justification for looking the other way, making the deal happen, pocketing the fees, and letting someone else clean up the mess later.

So The Sub-Prime Sequel is on. Will it fly? Has honor been restored enough to cause anyone in these elitist circles to actually step up, blow the whistle and refuse to participate in this fraud? Here’s hoping the spirit of “Restoring Honor” will derail this flim-flam. GM can recover, but only if it free of government control, manipulation and deceit, and the lawlessness of union favoritism. It’s a harder path and a longer path, but it is the only path that will rebuild GM on the rock.

Paul Gable

September 5, 2010