Obama's strategy on GM: Buy high, sell low

It's looking like the Administration is poised to dump General Motors right before the midterm election. Reason: "Obama Motors' ill-timed IPO"

The General Motors IPO, the second largest ever, is arguably this decade's most hyped financial event. But it might also turn out to be this decade's biggest financial fiasco. Its timing is driven not by the financial needs of the company - or the interests of taxpayers who are poised to get royally screwed - but the election-year needs of the Obama administration.

The White House is desperate to get this white elephant off the books before November. Although General Motors' bottom line has improved, it's extremely unlikely the American taxpayers will see a return on "investment":

All of this means that potential investors are likely to take a dim view of the company's prospects right now, making it nearly impossible for taxpayers who still have somewhere between $40 billion to $60 billion "invested" in it to come out whole. For that to happen, the Treasury's 304 million of the company's 500 million common shares would need to average $131 to $197 per share, notes Brad Coulter director at O'Keefe & Associates, a Michigan-based corporate finance firm. That would put GM's implied valuation at somewhere between $65 billion to $98 billion.

To understand just how absurdly high this is consider that Ford Motor Company has a market value of only $40 billion. "There is no rational reason for investors to choose GM relative to Ford right now," notes Francis Gaskin of IPODesk.com. But even if investors valued both companies the same that would still represent a 50% loss for taxpayers. It was always unlikely that taxpayers would ever recover their entire investment, but a more auspiciously timed IPO might at least have limited their losses.

It's all about doing something, anything, before the vote:

Even if the IPO turns out to be less of a disaster, the Obama administration's wanton disregard for both taxpayers and the company shows just how desperate it is getting to deliver some sliver of economic good news to angry voters ahead of the November elections. But its actions only bespeak the dangers of government bailouts. GM has a long way to go before it is truly back on its feet. It might make it-eventually-just as Iraq seems to have stabilized seven years after President Bush first declared victory. But as in Iraq, it will remain an open question as to whether the bailout was worth the risk and cost to taxpayers.

It might have been worth the risk if the White House had allowed an actual bankruptcy to take place instead of the fake one that screwed the GM bondholders while maintained the contracts for all the UAW employees. The moral hazard of this whole Government Motors affair is now laid bare since we can expect GM to come back for help once they collapse...again.