Debt and financialization may prove the undoing of an iconic American corporation, General Electric. From Bill Bonner at bonnerandpartners.com:
BALTIMORE – The titans of one era become the schmucks of the next.
Marshal Michel Ney, one of France’s greatest soldiers, was executed by his own people… who later put up a statue of him in Paris.
General Robert E. Lee was revered by both sides in the War Between the States; statues were later erected on both banks, north and south, of the Potomac. Now they are coming down (often in the middle of the night to avoid a confrontation).
And here now, among the mighty fallen, is General Electric and its celebrity ex-CEO, Jack Welch… Mr. “Winning” himself.
GE is crumbling. And so is Mr. Welch’s reputation. He made GE what it is today… and was named in 2000 as Fortune magazine’s “Manager of the Century.”
In summary of the next 500 or so words, Welch did to GE what Greenspan, Bernanke, and Yellen did to the U.S. economy: he financialized it.
Instead of offering goods and services in honest, win-win trades, Welch borrowed fake money and built an empire. Now that empire is falling apart.
But first, we go back to the glory days…
In the 1990s, GE Capital, the financial services unit of GE, was buying businesses all over America.
“What happened when the suits took over?” we asked an old friend, circa 1995.
He had sold his business to GE. We had heard that things weren’t going well.
“Well… it’s a disaster. They had no idea what they were getting. So they didn’t know how to manage it. I was doing about $5 million in profits a year. I think they’re doing about $5 million in losses now. They have no clue what they’re doing.”
“Are you going to help them?”
“No… They don’t want my help. They’ve got MBAs. I’m just going to wait until they give up and buy it back.”
Our friend must have anticipated GE’s reputation for “buying high and selling low.”
Which is exactly what happened: Our friend got his business back and soon made a success of it again. GE lost about $20 million on the go-round.
To continue reading: General Electric in Full Retreat