AIG and GM: .500 batting average for the Feds?

Beware this administration's claim of financial genius.

WASHINGTON, December 19, 2012 – Just a few days ago, the U.S. government, via the state-owned media, bragged about the profit the Feds had made for the taxpayers after divesting itself of its remaining shares of onetime financial and insurance giant AIG. Treasury announced that the $7.6B it booked in the sale resulted in a profit to the government—and thus the taxpayers—of $22.7B.

Well, they didn’t exactly use that language. As a longtime DC area resident and occasional contractor to the Feds, the Maven is not only accustomed to the peculiar dialect of Washingtonspeak. He even used to write some of it.

As James Saft argues in a Reuters online column, the news articles tout this apparent taxpayer win as “$182 billion well invested,” that number being the total amount of Federal dollars that were spent on the AIG bailout. But Saft regards this bragging via the compliant media as an effective hoax disguised as news. The reported “profit” number is meant to buttress this Administration’s bragging rights for a successful outcome, “though even the Treasury seems wary of calling the bailout bucks profit, using the more bureaucratic ‘positive return’ in its press release,” writes Saft.

“You can quibble with the figures—for example, that math takes no account of the value of tax breaks AIG received as part of the deal,” Saft continues; but “the real problem is with the very concept of the government investing in public financial companies which would otherwise go bust.”

In other words, given the time value of money and the fact that this bailout money wasn’t available to more productive segments of the private sector; that the assets of AIG allegedly deserved to remain intact when that wasn’t the case; and that the likely near-perpetual tax-loss carryovers AIG will enjoy for years all aren’t taken into account, the notion of taxpayer profit is dubious. Worse, Treasuries more nuanced Washingtonspeak version, “positive return,” may be disingenuous at best. But that’s never an issue with this Administration, where maintenance of its fictional narrative trumps all other issues at all times.

Equally interesting is the fact that the Feds are trying to dump the remaining huge chunk of shares of GM that they still own. But the press hasn’t done much to let the public in on the secret. The reason is obvious: the Feds are going to take a bath on this one, suffering a significant loss of the taxpayers’ “investment” in this sorry firm that’s been dominated for decades by cretinous management and union thuggishness.

As ZeroHedge reports today, “a few days after divesting its stake in the firm that started it all, AIG… the US Treasury continues to divest of all its bailout stake, this time proceeding to GM, where the channel stuffing* firm just announced it would buyback 200MM shares from the US government at a price of $27.50. More importantly, the ‘Treasury said it intends to sell its other remaining 300.1 million shares through various means in an orderly fashion within the next 12-15 months, subject to market conditions. Treasury intends to begin its disposition of those 300.1 million common shares as soon as January 2013 pursuant to a pre-arranged written trading plan. The manner, amount, and timing of the sales under the plan are dependent upon a number of factors.’ Assuming a price in the $27.50 range, this implies a nearly 50% loss on the government’s breakeven price of $54. So much for the “profit” spin. One hopes all those Union votes were well worth the now booked $40+ billion cost to all taxpayers.” (Bold type by ZeroHedge.)

This miserable but verifiable fact remains either unreported or underreported. No only are the Feds losing their collective shirts—and ours—on this likely illegal union bailout. If you subtract this loss from the alleged AIG gain—which is dubious anyway—you come out with a big negative number. Which of course is already monetized and has become part of the huge gift of red ink that our Boomer government is quietly and shamefully bequeathing to Millennial generations and beyond which will earn their undying, perpetual, and justified hatred when they figure out why they’ve been reduced to hopeless serfdom.

As you may recall, GM shares were repatriated, in part, to the stock market some years ago at a price bordering on $40 per share: a price they’ve never seen since. As late as summer 2011, the Obama Administration had been gearing up to sell its remaining GM shares to the public, the better to cop bragging rights for another “save” prior to the actual beginning of Campaign 2012. That was quietly shelved when they realized GM’s price would never get anywhere near $40, probably in this decade if ever.

Evidence for this is that, at least for now, the Feds aren’t contemplating a public sale of remaining GM shares. GM itself is now going to buy a tranche. Who knows where the rest of the shares will be “privately placed.” In any event, as Elmer Fudd used to say, “Keep vewy, vewy quiet…” The Feds will try to slip this narrative buster vewy quiet indeed so as not to damage the narrative of continuing Administration fiscal triumphs.

Ironically, the Chevy Volt, which the government essentially forced GM to market prematurely, continues to be a losing proposition for the company, even with a taxpayer subsidy of $7500 for purchasers of this unloved, unwanted vehicle, the aggregate of which amounts to more unreported GM red ink, BTW. One wonders if these subsidies will continue once the Feds rid themselves of their remaining shares.

At any rate, we thought you’d like to know what nobody will tell you. Our choice as citizens, moving ahead to 2013, is whether we continue to drink the Kool-Aid narrative that a majority of our fellow citizens gulped down with enthusiasm this past November 6; or if we bypass the state-owned media and discover the truth for ourselves whenever and wherever we can find it.

Meanwhile, back at the market, we’re down a bit this morning, circa 10:00 a.m. EST, even though futures seemed modestly up before the open. We’re getting news that housing starts have begun to fall, and, most likely, the HFT algos have started to sell on this news, forgetting yesterday’s fiscal cliff excitement. Other potentially negative news may dribble in from various government reports today and tomorrow giving the machines, and any remaining investors, a chance to take profits on the recent run-up, which is probably what’s mostly going on anyway today.

We’ll stay cool and continue to roll back either by taking profits or taking small losses to get out of positions that look like they’ve turned on us. Caution again is the word. You never know what will cause this market to tank, even though the Federal Reserve is, via its printing presses, begging investors to keep the pedal to the metal.

  *Channel stuffing. An interesting term not really understood by most of the public. When automakers wish to inflate sales and profit numbers in a meaningful way, they force their dealers to take on significantly greater inventories of vehicles than dealers are usually comfortable with. That’s because all these cars are effectively sold to the dealerships which then re-sell the cars to the public. So an automaker like GM can “stuff the channel” with loads of extra cars that dealers have to buy to stay in the franchise arrangement. And then GM can book these “sales” as profits for the given quarter they wish to inflate, thus appearing to be significantly more profitable than they are. Meanwhile, the dealers have to sop up the excess, often by extra-special tent sales and the like. The whole thing is deceptive and disgusting. But it’s been going on for ages.


Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.


Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

Follow Terry on Twitter @terryp17


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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  



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