CNBC: Flaherty Says Open GM IPO to All (But Retail Investors Should Not Buy)

Today, I debated whether GM should set aside IPO shares for taxpayers with Julian Epstein, LMG CEO and Democratic strategist. CNBC hosts are Trish Regan and Melissa Francis. Here’s a transcript:

Melissa Francis: We are asking, should the government tell GM to set aside IPO shares for the taxpayer. Here is what you said. Mario: The taxpayers should be ably to buy as many shares as they can with the amount of money they gave GM to bail them out. But James says the government is doing the public a favor by preventing participation in the IPO. That really cuts both ways. Joining us now is Peter Flaherty, President of the National Legal and Policy Center and Julian Epstein, the CEO of LMG and a Democratic strategist. Julian, this is kind of a PR disaster, I would say on the part of the government. What is the deal do you think? What should they do?

Julian Epstein: Well I think the big picture here is and we debated this a lot on this network a year ago is that lots of critics were saying that the bailout would never work. The bailout has not only worked, it is not only returning profits to the government, and GM is now profitable and people are clamoring for shares in the IPO. I don’t like the idea…

Melissa Francis: So should they get them?

Julian Epstein: …I don’t like the idea of these restricted IPOs to begin with, especially in this case where the taxpayers bailed GM out. So I really side with the critics on this. I think that the public and small retail investors ought to be able to get access. The argument on the other side is whether there will be enough shares for people to actually spread out so you can get the institutional investors and the retail smaller retail individuals. But I think that the public ought to be able to get access to this kind of thing, particularly given the fact that the public is the one who bailed GM out.

Trish Regan: Peter. Peter, these are the taxpayers, as Julian just said, who bailed this company out, shouldn’t they deserve a piece of all this if so they want it?

Peter Flaherty: Yes, indeed. Fairness would dictate that. Shares are being made available to foreign wealth funds, foreign sovereign funds, after the President said that the purpose of the bailout was to preserve American manufacturing. Also, you have this offering, being promoted by the Administration, by the United Auto Workers, which is selling shares, not buying shares, and also, the big New York banks who are serving as underwriters. There is an unholy confluence of interests on this. So that, yeah, shares will be available but by the time they get to the retail investor they will be bid up. So in a way it is the Administration’s pump and dump.

Melissa Francis: Julian what about what our viewer said that we are really doing the public a favor by not giving them these shares – the Treasury is. What do you think about that?

Julian Epstein: I think that is funny. I think they are worried obviously about where the auto industry may be a year or two from now. I am a little more pollyannish about where the auto industry is going to be.

Peter Flaherty: Indeed.

Julian Epstein: Again, you can find flies in the ointment here about the fact that this is going be a restricted IPO. I think that is a bad idea, I think that the public should get access to it. But the bigger point here is that all the critics, particularly the conservative critics said that the bailout of GM would never work. Not only has the bailout of GM worked, it has worked very well.

Trish Regan: That takes us in a different direction here.

Peter Flaherty: It has not worked.

Julian Epstein: It has put a critical company back on its feet.

Peter Flaherty: It has not worked.

Julian Epstein: And the TARP plan, everybody said TARP wouldn’t work. TARP has in fact worked.

Peter Flaherty: TARP has not worked.

Julian Epstein: People should give the Obama Administration credit.

Melissa Francis: Ok, Peter. Go ahead. What were you going to say?

Julian Epstein: It absolutely has. The financial institutions are back on health footing now.

Peter Flaherty: In both cases we are still bailing out the big banks. We hear a lot about valuation on this IPO, but I think that valuation is irreverent when you can’t quantify the political risk. GM still must clear major decisions about its operations with a guy named Ron Bloom who works in the Treasury Department who once called the free market “nonsense.” So I think that even if retail investors can get these shares, I don’t think that they should buy them at any price. The risks are just too big. Julian is absolutely wrong. GM is not out of the woods. In pension liabilities alone there is twenty seven billion dollars alone sitting out there. That money is going to flow to the United Auto Workers before it flows to shareholders. If you are interested in buying an auto stock I think there are better choices.

Melissa Francis: Julian, what about that?

Julian Epstein: Well we will let the market decide whether or not the bailout has worked. I think that the market certainly seems to believe that it has. While there has…

Peter Flaherty: Well let’s remove all the protections and subsidies and see if the market works.

Julian Epstein: …excuse me, I didn’t interrupt you. I didn’t interrupt you. Look I think that there are issues in terms of pension plans with the unions, but I think that it absolutely has worked. I think that the big point here is that the critics of the Obama Administration and there are many on nearly everything are all saying that these plans wouldn’t work. The auto bailout worked. TARP has worked if you look at all the data.

Peter Flaherty: No it has not.

Trish Regan: Julian.

Julian Epstein: In fact the stimulus has worked.

Peter Flaherty: No it has not.

Julian Epstein: We have gone from negative six GDP to positive one and a half GDP.

Trish Regan: Julian would you buy this stock?

Julian Epstein: Would I?

Trish Regan: Julian, if you could actually get it, would you buy it?

Julian Epstein: I think I would, yeah.

Peter Flaherty: Ok, well let’s see if you do.

Julian Epstein: I don’t know if I will have access it.

Peter Flaherty: The only reason we are talking about this IPO now is because the White House wanted to announce it before the election to make it look like they were moving away from government ownership of this car company. The public opinion polls show that the auto bailout remains even more unpopular than Obamacare and the stimulus spending. I think that retail investors should be very wary of this.

Julian Epstein: Right. I just think that is political demagoguery.

Peter Flaherty: How is it demagoguery?

Julian Epstein: If you look at the bottom line….Because this plan has worked in the same way that the stimulus plan worked to achieve positive growth.

Peter Flaherty: Why don’t we take away the protections and subsidies?

Trish Regan: Gentlemen, gentlemen, gentlemen. It looks like at least have you both agreeing that the average taxpayer, the average person out there should have access to the IPO.

Julian Epstein: We agree on that.

Trish Regan: As it stands now they don’t really have that.

Peter Flaherty: They should have the right, but they should stay away.

Trish Regan: We are going to move on here. Thank you for joining us.