[QUOTE=ewmayer;237693]So the big "new GM" IPO was today ... stock closed down about a buck from its $35 offering price,[/QUOTE]
[QUOTE=http://finance.yahoo.com/news/First-day-trading-of-GM-apf-2339978096.html]After being priced at $33 a share in the IPO, the stock opened at $35. It ended the day at $34.19, a gain of 3.6 percent, after trading as high as $35.99 in the first few minutes of trading.[/QUOTE]
I think that it was an up, not a down.

[QUOTE=Uncwilly;237715]I think that it was an up, not a down.[/QUOTE]

$33 is the "official" IPO price, which is somewhat arbitrary - I used the $35 open as my reference, since that's the opening retail price.

One of the writers for Barron`s discusses the role of HFT firm Getco and the various underwriters` "mystery fees" in the GM IPO:

[url=http://blogs.forbes.com/emilylambert/2010/11/18/gm-gives-high-freq-firm-the-keys/?partner=yahootix]GM Gives High-Freq Firm The Keys[/url]
[quote]When General Motors’ stock started trading Thursday on the New York Stock Exchange, it marked a milestone. Not just for the car maker formerly known as Government Motors. The day also represented an important coming out of sorts for Getco, the high-frequency trading shop that handled the opening of GM trading.

It’s a stunning ascent. A year ago Getco was basically a mysterious firm hiding out behind a closed door in Chicago. Now it has handled the biggest offering in history, selected over some far more famous and established firms including Bank of America and Goldman Sachs. It looks like Getco, not long ago an outsider, is part of the establishment and a pillar of the American economy, or something of the sort.

Why Getco? “No comment,” says a GM spokesman. Getco is similarly tight-lipped.

To be sure, Getco’s role should not be confused with that of the underwriter at an investment bank. Underwriters prepare a company for a stock launch. They take the company on a road show to meet potential investors, and they set the opening price for the stock. For this, they take their mammoth fees. (Supposedly these fees are clearly found in the prospectus. If you see them, please e-mail me.) GM’s lead underwriters were Morgan Stanley and JP Morgan Chase.

But once those underwriters did their work for GM, it was Getco’s turn. GM selected Getco to be what the exchange calls a “designated market maker.” This is the company that NYSE has tasked with maintaining a fair and orderly market in the stock once it trades. Getco, as this super-special market maker, has some obligations. It promises to buy and sell the stock at the best going price and to trade even when stock price starts to get out of whack, to smooth out volatility.

It also makes money for this. It doesn’t collect fees like the underwriters do, but it will be rewarded in an ongoing fashion through its trades. It gets certain advantages that can lean the market in its favor and can lead to nice profits. There’s no guarantee of profits, and making markets like this has turned into a competitive space. But it can be a sweet deal. Why else would a firm like Getco want the job?

The designated market maker is a variation on the old “specialist” firm. Those firms were also tasked with keeping an orderly market but were accused by many of taking advantage of their role. The specialist firms generally had and exploited big informational advantages. NYSE replaced specialists with the watered-down version of designated market maker after penny spreads and electronic trading made the old boys obsolete and uncompetitive.[/quote]
[i]My Comment:[/i] According to [url=http://www.businessweek.com/news/2010-11-17/gm-ipo-raises-20-billion-selling-common-preferred.html]this article[/url], the U.S. Treasury needs to sell its entire stake (they sold about a fifth of it today) at an average of ~$44 per share to break even on their GM "investment". Apparently the IPO also had the effect of bailing out a [url=http://blogs.forbes.com/joannmuller/2010/11/18/uaw-cashes-in-on-gm-ipo-pledges-to-help-gm-stay-viable/?partner=yahootix]big UAW retirement trust[/url] for GM workers.

We can debate the proper opening-price reference, but Yahoo! Finance must know something no one else does, since their [url=http://finance.yahoo.com/q/bc?s=GM]GM summary page[/url] - despite correctly listing the "previous close" (i.e. the official IPO price) as $33 and the open as $35 - indicates an eye-popping 4,458.67% rise on the day:

[QUOTE=ewmayer;237719]< snip >

Yahoo! Finance must know something no one else does, since their [URL="http://finance.yahoo.com/q/bc?s=GM"]GM summary page[/URL] - despite correctly listing the "previous close" (i.e. the official IPO price) as $33 and the open as $35 - indicates an eye-popping 4,458.67% rise on the day:[/QUOTE]... an improper comparison to the old class of now-penny-stock shares.

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

Warren Buffet has an NYT op-ed defending the mid-September 2008 actions taken to prop up AIG, etc.

"Pretty Good for Government Work"

[URL]http://www.nytimes.com/2010/11/17/opinion/17buffett.html?src=me&ref=general[/URL]

[quote]... Just over two years ago, in September 2008, our country faced an economic meltdown. [URL="http://topics.nytimes.com/top/news/business/companies/fannie_mae/index.html?inline=nyt-org"]Fannie Mae[/URL] and [URL="http://topics.nytimes.com/top/news/business/companies/freddie_mac/index.html?inline=nyt-org"]Freddie Mac[/URL], the pillars that supported our mortgage system, had been forced into conservatorship. Several of our largest commercial banks were teetering. One of Wall Street’s giant investment banks had gone bankrupt, and the remaining three were poised to follow. [URL="http://topics.nytimes.com/top/news/business/companies/american_international_group/index.html?inline=nyt-org"]A.I.G.[/URL], the world’s most famous insurer, was at death’s door.

Many of our largest industrial companies, dependent on [URL="http://topics.nytimes.com/top/reference/timestopics/subjects/c/commercial_paper/index.html?inline=nyt-classifier"]commercial paper[/URL] financing that had disappeared, were weeks away from exhausting their cash resources. Indeed, all of corporate America’s dominoes were lined up, ready to topple at lightning speed. My own company, [URL="http://topics.nytimes.com/top/news/business/companies/berkshire_hathaway_inc/index.html?inline=nyt-org"]Berkshire Hathaway[/URL], might have been the last to fall, but that distinction provided little solace.

Nor was it just business that was in peril: 300 million Americans were in the domino line as well. Just days before, the jobs, income, [URL="http://topics.nytimes.com/your-money/retirement/401ks-and-similar-plans/index.html?inline=nyt-classifier"]401(k)’s[/URL] and money-market funds of these citizens had seemed secure. Then, virtually overnight, everything began to turn into pumpkins and mice. There was no hiding place. A destructive economic force unlike any seen for generations had been unleashed.

Only one counterforce was available, and that was you, Uncle Sam. Yes, you are often clumsy, even inept. But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm.

. . .

... In the darkest of days, [URL="http://topics.nytimes.com/top/reference/timestopics/people/b/ben_s_bernanke/index.html?inline=nyt-per"]Ben Bernanke[/URL], Hank Paulson, [URL="http://topics.nytimes.com/top/reference/timestopics/people/g/timothy_f_geithner/index.html?inline=nyt-per"]Tim Geithner[/URL] and [URL="http://topics.nytimes.com/top/reference/timestopics/people/b/sheila_bair/index.html?inline=nyt-per"]Sheila Bair[/URL] grasped the gravity of the situation and acted with courage and dispatch. And though I never voted for [URL="http://topics.nytimes.com/top/reference/timestopics/people/b/george_w_bush/index.html?inline=nyt-per"]George W. Bush[/URL], I give him great credit for leading, even as Congress postured and squabbled.[/quote]

[QUOTE=cheesehead;237760]Warren Buffet has an NYT op-ed defending the mid-September 2008 actions taken to prop up AIG, etc.

"Pretty Good for Government Work"

[URL]http://www.nytimes.com/2010/11/17/opinion/17buffett.html?src=me&ref=general[/URL][/QUOTE]

Ah yes - that appeared several days ago in the NYT - my local paper reprinted it front and center in the op-ed page today. (Same prominent location they usually reprint Paul Krugman`s spend-your-way-out-of-debt Keynesian epistles, all unquestioningly.)

Barry Ritholtz, for one, took exception to Warren`s latest self-serving, faux-altruistic "keep up the great work, Uncle Stupid!" op-ed ... his riposte also contains one of the most concise, lucid summaries of the deregulatory and policy insanity that got us here (Ellipses in the quotebox indicate my redactions-for-length):

[url=http://www.ritholtz.com/blog/2010/11/dear-uncle-sucker/]Dear Uncle Sucker . . .[/url]

[i]For many years, I’ve been a fan of Warren Buffett’s long term approach to value investing. Understanding the value of a company, regardless of its momentary stock price, is a great long term investing strategy.

But it pains me whenever I read commentary from Buffett that glosses over reality or is somehow self-serving. His OpEd in the NYT today – Pretty Good for Government Work – paints an artificially rosy picture of the Bailout, ignores the negatives, and omits his own financial interest in government actions.

What might he have written if Sir Warren was dosed with some sodium pentothal before he sat down to pen that “Thank you” letter? It might have gone something like this:[/i]
[quote]DEAR Uncle [strike]Sam[/strike] Sucker,

I was about to send you a thank you note for bailing out the economy . . . but then some nice men dressed in Ninja outfits came in and shot me full of truth serum. That led me to make one more set of edits to my letter thanking you for saving the economy.

It also helped me recall some things I seemed to have forgotten in my other public pronunciations about the bailouts.

I suddenly recalled who it was who allowed the banks to run wild in the first place: You. Your behavior before, during and after the crisis was the epitome of a corrupt and irresponsible government. You rewarded incompetency, created moral hazard, punished the prudent, and engaged in the single biggest transfer of wealth from the citizenry of the United States to the Wall Street insiders who created the mess in the first place.
[i]
Kudos.
[/i]
Before I get to the bailouts, I have to remind you that in:

• 1999, you passed the Financial Services Modernization Act. This repealed Glass-Steagall, the law that had successfully kept main street banking safely separated from Wall Street for seven decades. Even the 1987 market crash had no impact on Main Street credit availability, thanks to Glass-Steagall.

• 1997-2010, you allowed the Credit Rating Agencies to change their business model, from Investor pays to Underwriter pays — a business structure known as Payola. This change effectively allowed banks to purchase their AAA ratings, and was ignored by the SEC and other regulators.

• 2000, you passed the Commodities Futures Modernization Act. It allowed the shadow banking industry to develop without any oversight by the Commodity Futures Trading Commission, the SEC, or the state insurance regulators. This led to rampant creation of credit-default swaps, CDOs, and other financial weapons of mass destruction — and the demise of AIG.

• 2001-04, the Fed, under Alan Greenspan, irresponsibly dropped fund rates to 1%. This set off an inflationary spiral in housing, commodities, and in most assets priced in dollars or credit.

• 1999-07, the Federal Reserve failed to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned such standards as employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability.

• 2004, the SEC waived its leverage rules, allowing the 5 biggest Wall Street firms to go from 12 to 1 to 20, 30 and even 40 to 1. Ironically, this rule was called the Bear Stearns exemption.

These actions and rule changes were requested by the banking industry. Rather than behave as adult supervision, you indulged the reckless kiddies, looking the other way as they acted out. [i]You were the grand enabler of the finance sector’s misbehavior[/i]. Hence, you helped create the mess by allowing the banking sector to run roughshod over decades of successful constraints. ([i]Kudos[/i] again on that).

There were voices warning about the upcoming crisis, but you managed to turn a deaf ear to them: Warnings about subprime lending, problems with securitization, against the false claim that residential real estate never went down in value, or that the models forecasting VAR were wildly understating risk. An economy driven by growth dependent upon credit fueled consumption was unsustainable, and yet you encouraged that reckless credit consumption. The compensation schemes for Wall Street were hilariously short term (ignored by you); the crony capitalism of Boards of Directors that undercut market discipline was similarly ignored. You encouraged the hollowing out of the US economy, allowing it to become increasingly “Financialized” at the expense of industry and manufacturing. What was once a small but important part of the economy became dominant, yet unproductive, with your blessing.

When the crisis struck, you did not seem to understand the role you should play. Instead of stepping up to halt the financialization, to unwind it, you gave away the shop. You failed to extract concessions from firms on the verge of bankruptcy. Your negotiating skills were embarrassing. In the face of meltdown, you panicked.

You could have undone the decades of radical deregulation at that moment. You could have fired the incompetent management, wiped out the shareholders who invested in insolvent companies, gave the creditors and bond holders a major haircut for their foolish lending. Instead, you rewarded them for their gross incompetence.

The solutions you ran with were ad hoc, poorly thought out, improvised. You crossed legal boundaries, putting the Fed in the position of violating its charter and exceeding its mandates. You created a Moral Hazard, the impact of which may not be felt until decades in the future.

...
Well, Uncle Sam, you delivered a motherload of cash. Considering the dollar sums involved, your actions were remarkably ineffective. What was left over afterwards was a wildly over-leveraged consumer whose credit limits had been reached; State and municipal budgets were heavily dependent upon that excess consumer spending, creating huge budget holes because of it. Net net: The resultant economy was in the worst recession since the Great Depression.

...
I would be remiss if I failed to mention my personal positions in this: I made a killing in Goldman Sachs and GE. My investments in Wells Fargo would have been a disaster if not for you. Don’t even get me started with me being the largest shareholder in Moody’s – that was some clusterf#@k. And considering all of the counter-parties that Berkshire Hathaway has, we risked being just another insolvent investment firm along with everyone else had nothing been done.

So I must say thanks to you, Uncle Sam, and your aides. In this extraordinary emergency, you came through for me — and my world looks far different than if you had not.

Your grateful but wide-eyed nephew,

Warren[/quote]

Irish bank runs accelerate
 

I misstated the amount of its stake in GM the U.S. Treasury sol;d yesterday - they sold around 50% of their total holdings, implying that they would need to sell the remaining half at an average price around $55 per share to break even.

In other news, runs on Irish Banks are accelerating, despite soothing talk from government officials and the ECB that a bailout is in the works, all will be well, etc:

[url=http://www.forbes.com/feeds/ap/2010/11/19/business-financials-eu-ireland-allied-irish-banks_8152403.html?boxes=Homepagebusinessnews]Allied Irish says it`s lost 17 percent of deposits[/url]
[quote]Allied Irish Banks announced Friday it has lost a staggering €13 billion ($18 billion), or 17 percent, of its total deposit base since June in the latest evidence of cash flight from Ireland`s debt-crippled banking sector.

Earlier this month two other banks, Bank of Ireland and Irish Life & Permanent, reported suffering losses of more than 10 percent of deposits in recent months.

The cash flight from Irish banks has accelerated since September, when the government raised its estimated bill for bailing out five banks to at least €45 billion ($62 billion), a figure that many analysts said was still too low.

The news comes as a team of international finance officials works with the Dublin government on the outlines of a rescue loan aimed at easing the impact of the banks` losses on the government`s stressed finances. Growing fears of a cash run on Ireland`s banks triggered this week`s emergency mission by European Central Bank and International Monetary Fund experts to Dublin.

In its management statement - which had been expected to be published earlier this week before the EU-IMF intervention - Allied Irish said institutions and businesses accounted for most of the lost deposit business. It said the European Central Bank and Irish Central Bank had provided short-term loans to cover the shortfall in cash but provided no figures.

Officials at Allied Irish said the bank had €74 billion in customer deposits at the end of June but just €61 billion today.

Allied Irish was once Ireland`s largest business, but it has suffered a spectacular fall since 2008 in line with the collapse of a construction-dependent economy. It recently has sold two of its best assets, a majority stake in Bank Zachodni of Poland and a minority stake in M&T Bank of New York, in a bid to drum up €10.4 billion in cash demanded by Ireland`s new financial regulator.

But the bank admitted Friday its cash drive has come up far short. It reiterated that its efforts to sell Allied Irish`s British division has been put on hold because of a lack of credible offers.

As a result, the bank said it now planned to try to sell €6.6 billion ($9.05 billion) in new shares next month - an offer likely to have only one buyer, the government. The expected sale would take the government`s stake from 18 percent to more than 90 percent.

...
The government already has nationalized three other bailed-out banks: Anglo Irish, Irish Nationwide, and the Educational Building Society. It has a 36 percent stake in Bank of Ireland. Irish Life & Permanent is the only Irish-owned bank that has received no state funds.[/quote]
[i]My Comment:[/i] Mish has a nice roundup on the current state of the Irish banking sector, including an article on the human cost of the property bust: [url=http://globaleconomicanalysis.blogspot.com/2010/11/run-on-allied-irish-banks-customers.html]Ghost estates and broken lives: the human cost of the Irish crash[/url].

[QUOTE=ewmayer;237807]

<snip>

What might he have written if Sir Warren was dosed with some sodium pentothal before he sat down to pen that “Thank you” letter? It might have gone something like this:[/i][/QUOTE]

Applause! Applause! Awesome letter. I single out one point:

"The compensation schemes for Wall Street were hilariously short term (ignored by you); "


Allowing financial institutions to award ridiculously obscene bonuses/salaries
based upon short-term criteria is what prompted Wall Street employees
to take ridiculous risks in the first place. The employees did not care if
things went wrong as long as they got their bonuses.

I call this "looting of the stockholders". The stockholders are the real
owners of a company. The money that got paid in bonuses should have
gone to them instead, perhaps in the form of dividends.

We need to give CONTROL of all public companies back to the owners.
We need a law requiring that all corporate compensation plans be subjected
to a BINDING vote of the stockholders at every annual meeting.
At the same time, there should be a requirement that all bonuses be
paid equally to all employees. This would stop the skimming at the top.
Finally, we need a law requiring that all corporate compensation be in the
form of salary ONLY. No more stock grants, stock options, etc.

Note that it is in the best interest of the stockholders to set salaries at
the right level. Too low and they won't get qualified employees. Too high
and they deprive themselves of the profits.

We also need an Alternative Minimum Tax for corporations just as there is
for individuals.

[QUOTE=R.D. Silverman;237818]Applause! Applause! Awesome letter. I single out one point:

"The compensation schemes for Wall Street were hilariously short term (ignored by you); "


[/QUOTE]

Let me also ask the following:

Among all of the foreclosures, do we have any data as to how many
occurred as a result of people walking away from negative equity versus
those who legitimately can't pay because of unemployment/large medical
bills/etc?

We should put a law in place that allows the courts to examine the finances
of people who have stopped paying. If they truly CAN NOT pay, then
proceed with the foreclosure. If the evidence indicates that they CAN pay,
but that the mortgage is under water (negative equity) then they should
be required to keep paying. When they bought the house there was no
guarantee that it would keep its market value. We should force payment
by wage assignment if needed.

Opinions?

[QUOTE=R.D. Silverman;237818]We also need an Alternative Minimum Tax for corporations just as there is
for individuals.[/QUOTE]That thought provoking idea gets my vote. It is disheartening to hear that some profit making companies are paying zero tax.

[QUOTE=R.D. Silverman;237818]
We need to give CONTROL of all public companies back to the owners.
We need a law requiring that all corporate compensation plans be subjected
to a BINDING vote of the stockholders at every annual meeting.
At the same time, there should be a requirement that all bonuses be
paid equally to all employees. This would stop the skimming at the top.
Finally, we need a law requiring that all corporate compensation be in the
form of salary ONLY. No more stock grants, stock options, etc.

Note that it is in the best interest of the stockholders to set salaries at
the right level. Too low and they won't get qualified employees. Too high
and they deprive themselves of the profits.
[/QUOTE]

Stockholder democracy at the moment is deeply Soviet; yes, there's in principle one vote per share, but it defaults to being cast as the board suggests (you can't abstain), and the big organisations who hold as nominees most of the shares issued never ask the people whose money bought the shares for an opinion and will, if pushed, just add a 5% annual management charge to any account in which the ultimate-shareholders deign to request the ability to vote.

So everything gets passed by 98%-2% unless something of the scale of the California teachers' pension scheme is trying to make a point; the big organisations are always voting in the interest of the mutual-fund-running class, and their employees are sufficiently keen on non-executive directorships in the future that they won't do anything to irritate the companies.

I don't think I have the necessary capability to figure out what the third level of managers at BP should be paid, any more than I have the necessary capability to figure out how many Type 45 frigates the Royal Navy should be ordering: in principle I vote for the board of directors who are professionals tasked with making that decision, just as I vote for an MP who is a professional tasked with the naval decision.

Maybe the underlying issue is that no company has a Loyal Opposition.

[QUOTE=fivemack;237822]Stockholder democracy at the moment is deeply Soviet; yes, there's in principle one vote per share, but it defaults to being cast as the board suggests (you can't abstain), and the big organisations who hold as nominees most of the shares issued never ask the people whose money bought the shares for an opinion and will, if pushed, just add a 5% annual management charge to any account in which the ultimate-shareholders deign to request the ability to vote.

So everything gets passed by 98%-2% unless something of the scale of the California teachers' pension scheme is trying to make a point; the big organisations are always voting in the interest of the mutual-fund-running class, and their employees are sufficiently keen on non-executive directorships in the future that they won't do anything to irritate the companies.

I don't think I have the necessary capability to figure out what the third level of managers at BP should be paid, any more than I have the necessary capability to figure out how many Type 45 frigates the Royal Navy should be ordering: in principle I vote for the board of directors who are professionals tasked with making that decision, just as I vote for an MP who is a professional tasked with the naval decision.

Maybe the underlying issue is that no company has a Loyal Opposition.[/QUOTE]

Senior execs sit on each others' boards. The results are ridiculous
compensation schemes. They scratch each others' backs.

Perhaps one solution is to put a legal cap on salary: No more than (say)
25 times the corporate median can be paid to any employee. And to
have the salary structure follow some fixed statistical distribution,
i.e. a Bell curve or similar.

And any bonuses get paid as a fixed percentage of salary to ALL employees.

Something needs to be done.

[QUOTE=R.D. Silverman;237823]Senior execs sit on each others' boards. The results are ridiculous
compensation schemes. They scratch each others' backs.

Perhaps one solution is to put a legal cap on salary: No more than (say)
25 times the corporate median can be paid to any employee. And to
have the salary structure follow some fixed statistical distribution,
i.e. a Bell curve or similar.

And any bonuses get paid as a fixed percentage of salary to ALL employees.

Something needs to be done.[/QUOTE]

Maybe put restrictions on boards?? Do not allow senior level execs at
any public company to sit on the board of another?

I'm just seeking ideas.......