A quick finance note. Without running all the numbers on GM, I’m sure that the taxpayer losses much exceed government claims or numbers, and probably more than most press accounts because of failure to include the COST OF CAPITAL. It’s been several years since the government bailed out GM, and it will be years before more funds are recovered. Any invested funds should earn a required rate of return, simply to keep up with compensation for time and risk. After all, the money could have been placed into other investments. This alternative cost is called a required return on equity or a cost of equity capital. In GM’s case, the risk is high. The return should be at least that on junk bonds. It should be at least 10–15 percent. Suppose we choose 10 percent. If $50 billion was invested, then the government should be getting $5 billion per year simply to break even. The longer it takes to recover the money in the future, the higher this amount becomes.

IPOs are notorious for being overpriced and for underperforming in the 5 years after issuance. There is also research showing that firms that have gone bankrupt and re-emerge have a higher than usual rate of going bankrupt again, especially if they continue to be highly indebted. I wouldn’t go near the GM IPO for these two reasons alone. They would have to be outweighed by serious information that the company had solved its multiple problems. My priors are that this hasn’t happened. After an initial period of enthusiasm and price support from the investment bankers, I expect GM to be a laggard and again to deteriorate.

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