Wednesday, May 06, 2009

Revolution Will Be Televised, But Not Announced In TV Guide

In the "I didn't realize they could do that" category, today we learn that GM plans a "100-for-1 reverse stock split". The result will be that current stockholders, such as myself, will go from owning 100% of the company to owning 1% of the company. Or, as Reuters puts, it, "GM plans to wipe out current shareholders." The U.S. Government and United Auto Workers will, by receiving newly-minted stock, become the major owners of the company.

For me, this will likely mean losing several thousand dollars. I currently own about 0.0004 % of GM; after, I will own 0.000004%.

Karl Marx said the revolution will be recognizable when the people-- or more specifically, the proletariat-- come to own the means of production. I can't think of any more obvious example than the UAW owning a third of GM. And taking my share in the company away seems not much different from the proletariat breaking down the door to my bourgeoisie house and hauling off my jewels for communal ownership. I guess it's slightly better than taking the current shareholders via ox-cart to the guillotine; but if I had all my money invested in GM, it would be about the financial equivalent of execution.

I would, of course, prefer that they start with the really wealthy people of this country, rather than people such as me. In fact I just did a bit of research and found that the average UAW electrician made considerably more than me last year. Also, though I'm generally in favor of it, I would've liked a bit of warning before we started in on socialism. But I guess that's sort of how it is: revolutions don't involve advance notification.


Anonymous Anonymous said...

Quit whining. If you want risk free money, don't buy stock. You think the gov should just funnel money to stockholders?

5/6/09, 2:49 PM  
Blogger Turboglacier said...

Didn't expect risk-free money. If I own a percentage of a company and the company does poorly or goes bankrupt, and thus my portion becomes worth very little or nothing, so be it.

But that is very different from owning a portion of a company and then being told that your portion is simply being given away to other people (in this case, the government, the employees, and bondholders.)

It's pretty much the same difference between owning a house and having its value fall (expected risk) vs. owning a house but then being told that, oops, sorry, someone else owns it now.

5/6/09, 2:59 PM  
Anonymous Anonymous said...

Newsflash: Your company has done poorly and is essentially bankrupt.

Stockholders are last in line in this scenario. GM (i.e. you) owe other people (bondholders, gov, union) a lot of money. This is how you're paying them back the money you borrowed. They're not thrilled about it either.

5/6/09, 3:05 PM  
Anonymous Anonymous said...

If stock holders were personally liable for the obligations of companies as they seam to think themselves deserving of the profits. Stockholders would not only become more active owners, but more grateful that their shares only depreciate to 0 instead of their true market value.

5/6/09, 3:14 PM  
Blogger C Neal said...

Turbo -
I tweeted your post to the guys at Planet Money, who just linked to you on their blog, so that's probably where the cranky comments are coming from. Sorry about that. But I did think that this was a really good perspective on things, and I wanted to share it.

To the anonymous commenter, I'd reply that yes, stockholders are typically last in line in a bankruptcy. But this isn't a bankruptcy. The government is making up its own rules, and that's what's problematic. Why are they screwing stockholders just to keep unionized autoworkers at work? It might appeal to our inner proletariat sense of justice, but, as Turbo notes, it sucks for him. Plain old bankruptcy would probably be better for everyone, including the stockholders; instead we're getting a nationalization shell game.

And in a broader sense, what kind of precedent does this set, when politically-connected workers in "too big to fail" industries can commit mutiny against their investors as soon as things get shaky?

5/6/09, 3:19 PM  
Anonymous Anonymous said...

If you think you'd be better off in bankruptcy (not likely imho), then your fight is with management, not the socialist bogeyman.

5/6/09, 3:25 PM  
Blogger Turboglacier said...

Thanks for the Newsflash, Anon. I hadn't realized that GM was not doing well-- this is interesting information indeed. Turns out (I just did a google search) that there is in fact a whole recession on! I had no idea.

You make some valid points. I'm not opposed to "my" company going bankrupt, if that's what needs to happen. I'm not a lawyer, but I seem to recall that the point of bankruptcy is to settle a corporation's unpaybable debts. Individuals aren't even responsible for their own debts after a personal bankruptcy, let alone for the debts of a company they happened to own stock in after the company goes belly-up.

Anyway, I, and the other stockholders, weren't given an opportunity to become a "more active owners" on this issue. I didn't get to vote on giving away my share of the company. The first I heard about it was reading the newspaper...

5/6/09, 3:26 PM  
Blogger Turboglacier said...

(and just for the record-- outside of my personal interests, I find this completely fascinating. If we are going to get to a socialist society in this country, this sort of thing may be the only way to smoke-and-mirror our way there. Anything less obfuscated-- such as a press conference where the President states "I intend to move the United States towards a socialist society", would likely result in a lot of firearms coming out. And I want that even less than I want my share of GM swiped from me.)

5/6/09, 3:31 PM  
Anonymous Anonymous said...

What exactly is it that you think a gm share would be worth if federal government didn't get involved and GM went into bankruptcy?

5/6/09, 3:36 PM  
Anonymous Anonymous said...

Stop acting like a 5-year-old. I suppose you'd prefer that the government lets GM fail? I'm sure you wouldn't have lost money then. There's no law anywhere that says you're guaranteed not to lose your investment if you invest in stock.

That's what you get for parking your money with a company that doesn't know how to make a car.

5/6/09, 3:42 PM  
Blogger Turboglacier said...

I guess I will not get a chance to find out what my share of the company will be worth.

Anyway, I think you're missing the point that there is a fundamental difference between a share becoming worthless, and a share being (essentially) taken away from you. Even if the financial result turns out to be the same.

5/6/09, 3:43 PM  
Anonymous Ben said...

So you admit that nothing of monetary value was taken from you. You just suffer some psychic scars from this process not going through a formal bankruptcy?

5/6/09, 3:51 PM  
Blogger Turboglacier said...

This blog is primarily about psychiatry, not money. If I talk about economics, it's usually at least partly in relation to how it affects people emotionally.

Anyway, I didn't "admit that nothing of monetary value was taken". I said that might turn out to be true, but I won't get to find out.

5/6/09, 4:02 PM  
Anonymous Anonymous said...

Are you kidding me, you are complaining about the value of your stock is being taken ways by the people you owe money too. There is liability attached to you stock. Yes it's limited, but it does exist. You bought an ownership stake. You had the option of being a bond holder as well. You made a choice and now you want to avoid down side risk.

In your house example it's like the bank taking you house.

5/6/09, 4:05 PM  
Anonymous Ben said...

Well, if you don't admit nothing of value was taken, you don't understand your investment very well. I recommend you get a LifeCycle fund on Vanguard and not worry about it.

5/6/09, 4:06 PM  
Blogger Turboglacier said...

"Well, if you don't admit nothing of value was taken, you don't understand your investment very well."

How about the fact that I could've sold my GM shares for $1.85 Tuesday afternoon before the announcement, but only $1.55 Wednesday morning, after? I would say that plan directly lowered the market value of my shares, wouldn't you?

Thanks for the tip on the LifeCycle fund, though.

5/6/09, 4:16 PM  
Anonymous Ben said...

Yes, you didn't get the handout from the government to shareholders of private companies that you and others were apparently counting on while railing against "socialism".

5/6/09, 4:23 PM  
Blogger Turboglacier said...

Uh, Ben, you must not be a regular reader. There isn't a whole lot of "railing against socialism" on this blog. Now and then I throw in a post that might be considered pro-capitalism, but this is mostly in case another McCarthy era rolls around and I wind up on some sort of list. You could try searching my blog for "capitalism" and see what turns up.

I'm taking a break from further comment on this post, but feel free to continue talking amongst yourselves!

5/6/09, 4:31 PM  
Anonymous TurboMom said...

Though the government has taken your money, it is giving some to TurboPop and me--every recipient of social security will receive a check for $250 this month whether we need it or not. Thanks Turbo and everyone else.

You may also be interested to know that we will probably never sell the family "manse" because capital gains tax is going to be so high that it won't make sense.

Why do people send their challenging comments under the name of anonymous?

5/6/09, 5:24 PM  
Blogger brushfiremedia said...

Wow, this is not the first case of a friend's blog getting linked to by a major site and then being filled with antagonistic and vitriolic comments by anonymous posters. Depressing.

5/6/09, 5:31 PM  
Anonymous Anonymous said...

How about the fact that you didn't sell your shares before the announcement for $1.85. This was not a surprise, this company has been loosing market share for a long long time and hemorrhaging cash for months.

Anyone who looks at the fundamentals of their business model could have see that this was a seriously mismanaged company. Now I completely sympathize with the lack of shareholder access, which is why no one in their right mind should buy stock as an investment. But this is a fundamental problem of Capitalism.

The real story is how the NY Stock exchange is a closed investment club for a few supper rich individuals and investment institutions. They in turn provide limited access to this club for non members in exchange for fees, and they user their power to basically rip off those small investors who are for all intents and purposes gambling.

Meanwhile the Exchange members also sit on the boards of many of the companies on the Exchange.

Back in the 1890's we used to have words for this type of thing. It was called "Interlocking board of directorates," "Trusts," and a new old phenomena is coming back, "price fixing."

Back in the day people like Benjamin Tucker, espoused what they called, Free-market anarchism. They called themselves socialists. Today we have conflated Free Markets and Capitalism to the point that we can't see that Socialism could take the form of Free Market enterprise. We can't see that Capitalism is antagonistic to Free Markets and destructive to economic security and individuality or societal Liberty as a whole.

5/7/09, 12:16 PM  
Anonymous gt. said...

wow. tg. what happened to your blog here? anon has his/her crankypants on. yikes.

5/7/09, 3:07 PM  
Anonymous casper said...

Funny confusion going on here. Yep I just read Planet Money and came over here. What the discussions shows, and I feel that was the initial point all along, is that there is a huge difference between value and feeling. Yes the stock value went down but the feeling of ownership remained the same. Now the ownership is stolen in part. Is that so? Should that not be open to current shareholders approval? (see the Belgium Fortis case) Or are you just feeling too small to have any influence on the outcome of such discussion. If that is the case your feeling are not jusitified as there is obviously no real difference between owning a very small or a very very small part of the company.
Finally most corporations are owned by laour already a long time through the pension funds.

5/8/09, 2:43 AM  

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