US treasury sells 75% of its stock with GM

[littleroc02us]

So, I saw a news article declaring that the US Treasury who owns 60% of GM is selling 75% of its stock in GM. The question I have for you guys is "when the US Gov't sells the stock, does that money go towards our national debt or do they just spend on their next pork project?"

[bjl584]

They are spinning off their ownership of the company. I believe the IPO is estimated to reduce the governments stake in the company from 60% to around 40%. The money generated should be paying back what it took to buy GM in the firstplace. At least, that's how it should be working.

[littleroc02us]

I wonder how we know for sure?

[nick__45]

We don't and it doesn't matter one bit. The issue I have with IPO or stock in general is that they are not true reflection of the company asset. If the company goes bankrupt, the stocks are worthless. What happened to the asset that the stock suppose to be tied to. Oh, that's right, the asset is actually tied to their borrowing power and stocks are not another pyramid scheme.

[jpg7n16]

Originally Posted by nick__45

We don't and it doesn't matter one bit. The issue I have with IPO or stock in general is that they are not true reflection of the company asset. If the company goes bankrupt, the stocks are worthless. What happened to the asset that the stock suppose to be tied to. Oh, that's right, the asset is actually tied to their borrowing power and stocks are not another pyramid scheme.

That's a misunderstanding about stocks.

Stocks were never supposed to be tied to assets. And they aren't tied to borrowing power either.

They are tied to a company's worth - made mostly of it's earning power.

Example: say I had a company I could run out of a literal cardboard box that made $1 million profit each year.

Would you buy my company based on the value of my cardboard box? Or on the value of that million dollar earning power??


Bonds however do have a limited claim on assets. I think you may have them mixed up.

[cicy33]

Originally Posted by jpg7n16

That's a misunderstanding about stocks.

Stocks were never supposed to be tied to assets. And they aren't tied to borrowing power either.

They are tied to a company's worth - made mostly of it's earning power.

Example: say I had a company I could run out of a literal cardboard box that made $1 million profit each year.

Would you buy my company based on the value of my cardboard box? Or on the value of that million dollar earning power??


Bonds however do have a limited claim on assets. I think you may have them mixed up.

True, but what if they go under again? I am not so sure they learned their lesson. Will the government bail them out again? If not then those stocks will be worthless. of course technically stocks are gambling. interesting how some forms are legal and others aren't, hmmm.

[jpg7n16]

Originally Posted by cicy33

True, but what if they go under again? I am not so sure they learned their lesson. Will the government bail them out again? If not then those stocks will be worthless. of course technically stocks are gambling. interesting how some forms are legal and others aren't, hmmm.

That is true of any investment.

If you feel GM will go under, don't buy their stock.

Remember stocks main value comes from the company's earning power, and if GM doesn't earn any profits, they have no earning power and therefore no value (besides liquidation value of assets, if any).

If stocks are gambling, then so are bonds, and partnerships, and sole proprietorships. If the company goes under, all are worthless (how are they going to pay back their bonds if they don't have any money?)

And by the same logic, it is gambling to work as an employee somewhere. What happens if the firm goes under?? You're out of a job, and that's a gamble.

-obviously, I don't think stock investing is gambling; there is a difference between gambling and investing-

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My personal opinion is that any proceeds from the sale of the GM stock should go towards any Gov debts outstanding. We need to deleverage sometime, why not start now?

[littleroc02us]

The problem is that it's my money and yours that the Gov't gave GM to borrow and I want it back... I don't care if they fail, it's called the Free Market!

[jpg7n16]

Originally Posted by littleroc02us

The problem is that it's my money and yours that the Gov't gave GM to borrow and I want it back... I don't care if they fail, it's called the Free Market!

Ummm no it wasn't. It was the government's money. I paid just as much in taxes as I would have whether the Gov bought up GM stock or not. There wasn't any extra money taken out of my account. My taxes were paid to the gov before this happened.

So you and I won't get anything back whether they sell or keep the stock.

It's likely that without the troubles at GM, the Gov would have found a different way to spend that money. On some $100k hammer or something.


And the value of GM stock has no impact on whether GM will fail as a company or not. Although if GM fails as a company, that would affect the value of the stock - the same is not true in reverse.

If GM stock went to $1 tomorrow, it wouldn't affect the daily operations of the company one bit.

[cicy33]

Originally Posted by jpg7n16

-obviously, I don't think stock investing is gambling; there is a difference between gambling and investing-

--------------------

I'm sorry but how on earth can you not consider stock investing gambling? I have done a lot of research on line on this subject because I have wanted to get into it and everywhere I read one of the first things that is mentioned is that stock investing is not a guaranteed money return. and since there is nothing physical that is pure gambling. you purchase a "stock" and if it raises you get extra money and if it drops you lose money. sounds like gambling to me.

[quote=That is true of any investment. If you feel GM will go under, don't buy their stock./QUOTE]

I agree with this statement completely. I was simply making a point to the question asked. I won't buy their stock because I don't believe they will succeed. For some reason people thought it was ok for them to get this bail out and I don't. They did not use good business sense and like other businesses that went under so should they have. I know the first thing people will yell, but the jobs!!! well, other places laid off people too, some companies laid off lots of people. here is a chart I found online of job layoffs in 2009. Some business's even closed.

Business # affected
Macy's 7,000 Feb 2
Kodak 4,500 Jan 29
Starbucks 6,000 Jan 28
Boeing 10,000 Jan 28
Sprint 8,000 Jan 26
Home Depot 7,000 Jan 26
Caterpillar 20,000 Jan 26
Harley-Davidson 1,100 Jan 23
Microsoft 5,000 Jan 22
Intel 6,000 Jan 21
Circuit City 30,000 Jan 16
Google 100 Jan 14
Walgreen 1,000 Jan 8

[greenskeeper]

Originally Posted by littleroc02us

So, I saw a news article declaring that the US Treasury who owns 60% of GM is selling 75% of its stock in GM. The question I have for you guys is "when the US Gov't sells the stock, does that money go towards our national debt or do they just spend on their next pork project?"

It was all printed out of thin air to begin with, so back to thin air it will go

[littleroc02us]

Originally Posted by jpg7n16

Ummm no it wasn't. It was the government's money. I paid just as much in taxes as I would have whether the Gov bought up GM stock or not. There wasn't any extra money taken out of my account. My taxes were paid to the gov before this happened.

So you and I won't get anything back whether they sell or keep the stock.

I didn't actually mean the Gov't was going to send me a check in the mail when they cash out the stocks from GM. I meant that I pay taxes and I don't believe in the Gov't bailing any company out. That is my money they are using, is it not? As far as I remember the Gov't wouldn't exist without my taxes.

[jIM_Ohio]

Stocks serve 2 purposes

1) it gives you ownership of a company. At some point you should expect the company to earn more money and either see stock go up in value, or pay you some of those earning as dividends. If you invest for any other reason, then you are gambling, but the returns for gambling will be higher in Vegas than they will be on wall street. However the probability of success on wall street might be higher than in Vegas, you decide that though.

2) it gives the companies money (when they issue new stock). This is the primary reason for stock being created. Companies need access to capital and they can either
a) issue new stock
b) borrow money (in form of bonds)
each has pros and cons.


I think Microsoft is a good example. Bill Gates and a few others built it up in their garage and had software which worked. However they needed to expand- build more software, get offices, market their products and hire more people. They could either do one of three things

a) when profits came in, bank them and when they had enough in bank tackle one or more of the projects above.
b) borrow money as a private company, then pay that money back over time
c) issue stock, allowing others to own a portion of the company's profits

as demand for the stocks goes up, the price goes up.
as demand for their loans went up, the price Microsoft would pay to borrow money would go down, but it would take a long time for this to take effect. If MSFT paid its bondholders back, a $1000 bond paying 5% might start selling for 1250 if other bonds were paying 4% or people just wanted the steady income, the next time MSFT issues bonds, it might only issue them at $1000 per bond paying 4%. Over time this might cost the company less, but its not easy to do this quickly.

Issuing new stock dilutes earnings (each shareholder is "entitled" to less earnings if more stock exists)
Issuing new bonds costs company more in operating costs (to pay back the debt) so there are pros/cons of each approach.


Back to GM, the IPO is worth what people are willing to pay for it. GM is a transportation stock more than it is anything else (technology stock, consumer stock...) and IMO the growth will come from new technology in the car, not the selling of cars themselves, so I would focus more investments on the companies which make the technology in the car, not the car itself.

Because ultimately GM needs to get technology to its customers, and that is where it failed over the last 20 years (30 years??). GM is one of my company's biggest 5 customers, and my college degree is from a school which bears GM's name (well it used to bear name anyway). But I highly doubt the culture of the company changed enough to actually solves its bigger problems.

[littleroc02us]

Originally Posted by greenskeeper

It was all printed out of thin air to begin with, so back to thin air it will go

ha, ha ha... Funny stuff

[cjscully]

Originally Posted by jpg7n16

Ummm no it wasn't. It was the government's money. I paid just as much in taxes as I would have whether the Gov bought up GM stock or not. There wasn't any extra money taken out of my account. My taxes were paid to the gov before this happened.

So you and I won't get anything back whether they sell or keep the stock.

Sorry but you're wrong here. This was deficit spending. The government took on more debt to do this. That means they committed your future taxes to bail out GM (and do all the other bailouts they did). Your taxes didn't go up at the time of the bailout, but they could very well go up in order to service the debt at some point in the future.

That's why it's important for the government to sell it's interest in GM and for the money to go directly to reducing the deficit in the federal budget.

Unfortunately our elected representatives probably won't handle it that way. Apparently fiscal responsibility is not considered part of their job description.

[jpg7n16]

Originally Posted by cicy33

I'm sorry but how on earth can you not consider stock investing gambling? I have done a lot of research on line on this subject because I have wanted to get into it and everywhere I read one of the first things that is mentioned is that stock investing is not a guaranteed money return. and since there is nothing physical that is pure gambling. you purchase a "stock" and if it raises you get extra money and if it drops you lose money. sounds like gambling to me.

Because they are different.

Stop reading online, and read The Intelligent Investor instead. Which defines the difference between stock investment and stock speculation in Chapter 1.

You can view a portion of it free online through Google books: The intelligent investor - Google Books

You can use stocks to gamble, but there is a difference.

-----------------------------------
But in general, gambling is by necessity win/lose. Investing is not. When you gamble, in order to win, someone else must lose. Ie. casinos; For the house to win, you must lose. For you to win, the house must lose. You cannot both succeed.

But investing is different. I can invest at an early stage of a company for $1 a share. Then if the company does well and grows to $5 I can sell my interest to you. If it then grows to $10, we each win. I invested $1 and made $4, and you invested $5 and made $5 more. It is possible for everyone to win.



If you want to read more info online, search for Warren Buffett's view on investing.

And watch this video on Google:
Warren Buffett MBA Talk


There is a lot more to investing than just buying some group of letters and praying that the numbers go up.

[jpg7n16]

Originally Posted by cjscully

Sorry but you're wrong here. This was deficit spending. The government took on more debt to do this. That means they committed your future taxes to bail out GM (and do all the other bailouts they did). Your taxes didn't go up at the time of the bailout, but they could very well go up in order to service the debt at some point in the future.

That's why it's important for the government to sell it's interest in GM and for the money to go directly to reducing the deficit in the federal budget.

Unfortunately our elected representatives probably won't handle it that way. Apparently fiscal responsibility is not considered part of their job description.

Deficit spending is government spending. With the government's money. And incurring debt to the government.


So you're also saying that you're not certain that taxes will go up? "could very well" does not mean that they will for certain. Taxes would go up in a democratic run government whether they bailed out companies or not. Taxes were higher under Clinton, than they were under Bush. (even though the economy was doing fine - no bailouts from Clinton).

Once we are taxed, it ceases to be our money and is now the government's money. Which they spend however they choose. If they feel the best use of that money is to bail out a large corporation - that's up to them. It's not our money.

Just try asking for some of it back.

If you don't like how they are spending THEIR money, you can elect different people to run the government.


And from what I remember the government made a lot on their investment. If the remaining investment continues to go up in value, that would HELP the government satisfy their debt obligations. So it in fact may be in the government's best interest to keep its investment in GM. Cause if it doubles, that is twice the money that they could use to pay down the national debt.

[jpg7n16]

Originally Posted by littleroc02us

I didn't actually mean the Gov't was going to send me a check in the mail when they cash out the stocks from GM. I meant that I pay taxes and I don't believe in the Gov't bailing any company out. That is my money they are using, is it not? As far as I remember the Gov't wouldn't exist without my taxes.

No. It isn't.

It ceased to be yours as soon as you paid your taxes.


Just like how BP wasn't using YOUR money to clean up the oil spill. Once you gave BP cash for gas, it ceased to be your money. And BP decided it would use its money to clean up the oil spill.

The government taxes its citizens to provide for them in the way it best sees fit. Once you pay the gov your taxes, it ceased to be your money. And the gov decided that it was in the nation's best interest to bail out a huge manufacturer (and banking institutions).


I understand the disagreement with bailing out companies. Free market and all that. Many people agree with you on that.

I don't understand why you think it's still your money.

[GREENBACK]

Duh, people we're borrowing all this from China.

[littleroc02us]

Originally Posted by jpg7n16

No. It isn't.

It ceased to be yours as soon as you paid your taxes.


Just like how BP wasn't using YOUR money to clean up the oil spill. Once you gave BP cash for gas, it ceased to be your money. And BP decided it would use its money to clean up the oil spill.

The government taxes its citizens to provide for them in the way it best sees fit. Once you pay the gov your taxes, it ceased to be your money. And the gov decided that it was in the nation's best interest to bail out a huge manufacturer (and banking institutions).


I understand the disagreement with bailing out companies. Free market and all that. Many people agree with you on that.

I don't understand why you think it's still your money.

The point is that the Gov't wouldn't exist without our tax money, they produce and make nothing and I can fire them anytime I feel like it because of their inability to manage money which has been clear as water for a long time. Look what just happened in the last election, the stupid congress man stopped listening to the public and many of them lost their jobs to Republicans. They'd better listen to what we want done with our money. It is our money!!