On the $GM IPO Debacle, Part I (of likely several)

12 Nov

Just a warning, this is a rant, and as such, it is going to be stream-of-consciousness and likely rambling and at times borderline incoherent.  That being said, here we go:

The argument today on CNBC (and several other outlets I saw in my twitter stream I don’t have the inclination or patience to read) from several pundits, flapping heads, etc seems to be that because “taxpayers” (if you don’t know why I put that in quotes please stop reading now) bailed out GM, all of that cohort should be given access to the IPO.  In the immortal words of the Geico Caveman: “fuh, what?!”

Let me get this straight.  Apparently small retail investors are outraged (or at least their self-proclaimed advocates are) that they can’t retain/increase their exposure to the clusterf*ck that is GM?  Gluttons for punishment they be, no?  My thoughts on GM’s financial, strategic, and operational condition aside, what’s the rationale behind this non-sequitur?  There’s a missing link in this argument that I can’t for the life of me comprehend.  Given A (…) B seems to be the logic as far as I can tell, similar to the

1. Steal underpants

2. ??????

3. Profit!

argument.  Seriously, someone please enlighten me why every American with a brokerage account deserves an allocation of GM IPO shares because I really just.don’t.get.it.

Now, on to how things actually work in the brokerage industry because MSM apparently doesn’t realize this.  At big brokerage firms (and I imagine the same is true at smaller shops as well), syndicate deals (stock, bond, structured products, whatever) are allocated to clients based on several factors, captured by a firms internal scoring, itself based on factors like how much commissions a client generates, the size of the account, and past participation in syndicate deals.  Now, if Treasury doesn’t feel it necessary to include the discount brokerages (Schwab, E-trade, Ameritrade, etc) in the underwriting group, perhaps there’s sufficient demand among clients of the other 15-ish underwriters (including the 2 biggest brokerage firms in the country MSSB and BAML) to sell the deal at a fair price (leaving the definition of that term aside for a second).  Just sayin…

Now I’m not saying a Dutch Auction wouldn’t have been a good idea (it likely would have, politically and financially), but there seems to be way too much hate for how this GM IPO is being sold.


4 Responses to “On the $GM IPO Debacle, Part I (of likely several)”

  1. Kid Dynamite November 12, 2010 at 3:52 pm #

    omg – can you imagine a dutch auction? as if the retail investor is capable of valuing GM! The retail investor doesn’t even understand that stock price is a random number: it’s not the “$20 per share” that matters – it’s the “$20B market cap”…

    I would actually LOVE to see them do a Dutch auction of 100 BILLION shares – and watch morons buy them at, say $10, because “hey, $10 is a cheap stock price”

    • Anal_yst November 12, 2010 at 4:14 pm #

      Ha, plays to my updated rant yesterday about laypeople needing protection from themselves, sigh…

      • Kid Dynamite November 12, 2010 at 4:23 pm #

        I have zero doubt that retail monkeys would rather buy $1 shares in a 100Billion share IPO than $25 shares in a 2Billion share IPO. NONE. $1 is SO CHEAP!!!!


  1. On the GM IPO Debacle, Part II « Stone Street Advisors - November 16, 2010

    […] the GM IPO Debacle, Part II In part I, I explained that even if the online/discount brokers (that serve “everyman,” […]

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