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How U.S. involvement in GM affects IPO

Paint flakes away from a General Motors Co. logo on the door of a defunct auto parts store in Chicago, Ill. Scott Olson/Getty Images

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Tess Vigeland: So as we just mentioned, GM plans to relaunch as a public company in the not too distant future. Pretty soon, you could be buying shares, which is a little strange since taxpayers already essentially own GM — 61 percent of it. And that got us wondering what Uncle Sam’s involvement in a company means for investors.

Marketplace’s Stacey Vanek-Smith takes a look.

Stacey Vanek-Smith Uncle Sam can be a little difficult for investors to escape these days. The government owns stakes in companies from General Motors to Citigroup.

Laurence Kotlikoff is an economist at Boston University. He says there are a lot of benefits to having the state as a stakeholder.

Laurence Kotlikoff: The government is in effect saying, “Look, if the company runs out of money, we the government will bail it out.”

Kotlikoff says is also makes it a lot easier for those companies to borrow money. Just today, GM announced it’s borrowing $5 billion to help it go public — and all that is great in the short term. The long term is another story.

Kotlikoff: You’re kind of getting into bed with an 800-pound gorilla. You’re partnering, in effect, with an investor whose got other objectives than you have.

The government might want to control executive pay or pursue other agendas. Mark Coffelt is president of Empiric Advisors. He says that’s been the problem with Fannie Mae and Freddie Mac. Instead of trying to make them profitable, the government is using them to help stimulate the housing economy.

Mark Coffelt: The government is not in the profit business, they’re in the political business. The economy runs on risk, it runs on capitalism and that’s really what we need today. And when the government steps in, they take away that capitalism.

But the government is usually careful not to get too involved. And financial analyst Ray Perryman says it generally wants to extricate itself over time.

Ray Perryman: They do walk a very fine line there because they are public resources, you want them to benefit the public. By the same token, in the long run, the worst thing they could do to benefit the public is impose practices that are going to limit profitability.

After all, Perryman says the whole point of the government taking over GM was to turn it around and make it a profitable, public company once again.

I’m Stacey Vanek-Smith for Marketplace.

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