WEBVTT - Rerun: The GE of Today 0:00:04.400 --> 0:00:07.800 Welcome to Tech Stuff, a production from I Heart Radio. 0:00:12.520 --> 0:00:14.880 Hey there, and welcome to tech Stuff. I'm your host, 0:00:15.000 --> 0:00:18.319 Jonathan Strickland. I'm an executive producer with iHeart Radio, and 0:00:18.840 --> 0:00:21.560 I love all things tech and it is time for 0:00:21.680 --> 0:00:25.800 us to conclude the g E Saga. Now. These were 0:00:25.840 --> 0:00:28.640 a series of episodes that originally published back in two 0:00:28.680 --> 0:00:31.520 thousand nineteen. I did reruns this week because in case 0:00:31.720 --> 0:00:34.360 you hadn't listened to any of the other ones, I'm 0:00:34.400 --> 0:00:38.400 on vacation this week. I am. I am vacating. Actually, 0:00:38.880 --> 0:00:41.680 as you listen to this, I'm probably getting ready to 0:00:41.760 --> 0:00:45.400 head back to Atlanta. But yes, I was on vacation 0:00:45.520 --> 0:00:48.680 and I didn't want to leave you without any episodes. So, 0:00:48.880 --> 0:00:52.360 because GE recently announced it was going to split up 0:00:52.400 --> 0:00:56.440 into three separate companies in the near future, I thought 0:00:56.480 --> 0:00:59.160 it would be good to go back and review the 0:00:59.240 --> 0:01:02.880 history of Ural Electric. It's a long and storied and 0:01:03.440 --> 0:01:07.039 at times very bumpy history, and so we are going 0:01:07.080 --> 0:01:10.480 to listen to the g E of today. Although keep 0:01:10.480 --> 0:01:13.800 in mind the today in that title refers to two 0:01:13.880 --> 0:01:18.440 thousand nineteen, because this episode originally published on September eleven, nineteen. 0:01:18.959 --> 0:01:21.520 I hope you enjoy and I'll talk to you again, 0:01:22.319 --> 0:01:26.000 really really soon, like next week when I'm back in 0:01:26.040 --> 0:01:30.240 the office. We have come to the end of our 0:01:30.319 --> 0:01:34.760 journey covering the history of General Electric up to today, 0:01:34.840 --> 0:01:37.480 and just a heads up, this episode is going to 0:01:37.480 --> 0:01:41.520 focus a lot on the business side of General Electric 0:01:41.680 --> 0:01:45.479 rather than the tech side of General Electric. I could 0:01:45.520 --> 0:01:48.280 have ended this series with the last episode as far 0:01:48.320 --> 0:01:51.120 as the technological innovations go. And that's not to say 0:01:51.160 --> 0:01:56.000 GE hasn't continued to innovate in the post Jack Welch era, 0:01:56.480 --> 0:01:59.160 but rather that the innovations the company is most known 0:01:59.280 --> 0:02:05.320 for span the previous one years of its existence. The 0:02:05.440 --> 0:02:09.240 last twenty years, the most recent twenty years have been 0:02:09.280 --> 0:02:13.960 more marked with controversy and business practices and market issues. 0:02:14.639 --> 0:02:17.320 And I think it's important to understand what's happened since 0:02:17.320 --> 0:02:20.720 two thousand one because GE has been such an incredibly 0:02:20.840 --> 0:02:25.440 important part of the modern technological landscape. I mean, that's 0:02:25.960 --> 0:02:29.800 one of the main companies that helped spread the electrical 0:02:29.880 --> 0:02:33.519 infrastructure in the United States. You know, without GE, it 0:02:33.560 --> 0:02:36.560 would have taken much longer for that to have happened, 0:02:36.760 --> 0:02:40.000 and the world would be very different today if GE 0:02:40.040 --> 0:02:43.399 had not existed. But in the last episode, I told 0:02:43.440 --> 0:02:46.720 you guys about Jack Welch, the g E CEO who 0:02:46.760 --> 0:02:51.240 pushed the company to incredible profitability, mainly by selling off 0:02:51.320 --> 0:02:55.200 businesses where General Electric wasn't in first or second place 0:02:55.240 --> 0:02:58.560 in the industry. He sold off more than seventy of 0:02:58.680 --> 0:03:01.760 g S businesses just in his first two years of 0:03:01.800 --> 0:03:05.080 being CEO. He also laid off more than one hundred 0:03:05.160 --> 0:03:09.800 thousand employees, which earned him the nickname Neutron Jack, because 0:03:09.800 --> 0:03:13.840 like a neutron bomb, he eliminated people without damaging the assets. 0:03:14.200 --> 0:03:18.160 And he also led efforts to acquire financial institutions like 0:03:18.320 --> 0:03:22.720 banks and insurance companies in order to launch this financial 0:03:22.760 --> 0:03:25.320 and insurance business, and that would end up giving g 0:03:25.480 --> 0:03:31.120 E an enormous revenue boost. It would become incredibly important 0:03:31.160 --> 0:03:34.720 for the company in the nineteen eighties and beyond for 0:03:34.840 --> 0:03:41.960 different reasons. Now. One exception to Welch's amazing victories was 0:03:42.000 --> 0:03:46.320 an acquisition of a securities firm called Kidder, Peabody and Company, 0:03:46.400 --> 0:03:50.720 which was actually an even older company than General Electric. 0:03:51.320 --> 0:03:55.000 If you looked at the origin for Kidder, Peabody and Company, 0:03:55.080 --> 0:03:57.840 that firm traced its history all the way back to 0:03:57.920 --> 0:04:02.080 eighteen sixty five, more than a decade before even the 0:04:02.160 --> 0:04:06.680 earliest of companies that formed General Electric. Welch led the 0:04:06.720 --> 0:04:10.480 acquisition effort in nineteen six, But then there were a 0:04:10.520 --> 0:04:14.760 series of scandals centered around insider trading that brought a 0:04:14.760 --> 0:04:18.400 lot of suspicion and scrutiny on Kidder Peabodies business and 0:04:18.440 --> 0:04:23.440 therefore GE Capital, the financial division of General Electric. And 0:04:23.520 --> 0:04:27.760 a year after the acquisition, the global stock markets crashed 0:04:27.760 --> 0:04:32.240 on October nineteenth, n seven and what was called Black Monday. 0:04:32.320 --> 0:04:35.400 The combination of events convinced Welch that he had made 0:04:35.400 --> 0:04:39.400 an error in judgment acquiring Kidder Peabody, and it took 0:04:39.440 --> 0:04:44.640 several more years and more scandals centering on Kidder Peabodies 0:04:44.839 --> 0:04:48.520 record keeping and allegations of reporting false profits, but GE 0:04:48.560 --> 0:04:52.840 would eventually sell Kidder Peabody off at a huge loss. 0:04:53.279 --> 0:04:56.760 Now that embarrassment aside, GE for the most part did 0:04:56.960 --> 0:05:00.320 very well in the eighties and nineties. The stock price 0:05:00.360 --> 0:05:04.480 for g E rose four thousand percent. Some sources state 0:05:04.560 --> 0:05:06.880 that when you take all the factors into consideration, it 0:05:06.960 --> 0:05:11.560 was more like five thousand two. Under Welch's command, he 0:05:11.600 --> 0:05:14.599 put off his retirement in order to secure an acquisition 0:05:14.680 --> 0:05:17.560 of Honeywell International. If you listen to my last episode, 0:05:17.960 --> 0:05:21.760 you know that didn't go well. The European Commission denied 0:05:21.960 --> 0:05:26.120 the merger for anti competitive reasons, and the man who 0:05:26.240 --> 0:05:28.960 hated to lose, Jack Welch, had to go out on 0:05:29.000 --> 0:05:32.440 a down note. But compared to GE, you could say 0:05:32.520 --> 0:05:35.800 Jack Welch got off easy. Now, this episode will cover 0:05:35.920 --> 0:05:39.719 what happened to General Electric since two thousand one, including 0:05:39.760 --> 0:05:43.560 the events that would create massive problems for the huge company. 0:05:43.880 --> 0:05:46.760 And there is ongoing disagreement as to whether most of 0:05:46.760 --> 0:05:50.440 the blame should fall on Welch's successor, or if Welch 0:05:50.560 --> 0:05:54.640 himself should shoulder some of that responsibility or some other party. 0:05:54.760 --> 0:05:59.080 So what the heck actually happened? Well, first, let me 0:05:59.120 --> 0:06:02.160 talk a little bit about g S stock, because that's 0:06:02.200 --> 0:06:04.680 going to come back around later in this episode a 0:06:04.720 --> 0:06:08.160 few times. So, for years, g E paid out a 0:06:08.240 --> 0:06:11.919 dividend on its stock. Not all companies do this, and 0:06:11.960 --> 0:06:14.719 a dividend is a payment that a company makes to 0:06:14.839 --> 0:06:18.400 distribute some of its revenue to its shareholders. So a 0:06:18.440 --> 0:06:21.520 company makes money and then distributes some of that money 0:06:21.560 --> 0:06:24.440 amongst the people who hold shares in the company. It's 0:06:24.520 --> 0:06:28.200 usually not very much per share. In fact, it's typically 0:06:28.320 --> 0:06:32.159 less than a dollar. Ges case, it was around thirty 0:06:32.200 --> 0:06:35.080 one cents for a long time. In the US, there 0:06:35.080 --> 0:06:38.159 are no rules about how frequently a company actually pays 0:06:38.200 --> 0:06:41.920 out dividends. Most companies will do it quarterly, so you 0:06:41.960 --> 0:06:45.760 would get one quarter of your dividend four times a year. 0:06:45.920 --> 0:06:48.479 So if it was a dividend of forty cents, that 0:06:48.560 --> 0:06:50.880 means every three months you would get a check for 0:06:50.960 --> 0:06:53.600 ten cents for every share you own. So it's not 0:06:53.720 --> 0:06:55.640 very much, but if you own a lot of shares, 0:06:55.680 --> 0:06:59.320 it starts to add up. And besides distributing revenue, it's 0:06:59.360 --> 0:07:03.840 also meant to incentivize shareholders to reinvest and buy more 0:07:03.960 --> 0:07:07.599 shares of stock in that company. So the idea is, oh, 0:07:07.760 --> 0:07:09.920 you got a dividend payout, it's enough for you to 0:07:09.920 --> 0:07:12.160 buy another share in the company, So you spend that 0:07:12.200 --> 0:07:16.600 dividend buying another share. That's the logic there. Well, when 0:07:16.600 --> 0:07:21.600 Welch first took over g E stock wasn't doing so great, 0:07:22.000 --> 0:07:25.160 it wasn't super high. A lot of investors thought of 0:07:25.200 --> 0:07:29.160 the stocks as essentially a dividend payout and not much else, 0:07:29.240 --> 0:07:32.119 so you wouldn't buy g E stocks with the idea 0:07:32.200 --> 0:07:35.120 of selling them at a higher price leader on the road. 0:07:35.240 --> 0:07:37.800 You know, you weren't thinking, I'm gonna buy now, because 0:07:37.920 --> 0:07:40.760 in five or ten years this stock is going to 0:07:40.840 --> 0:07:43.520 be worth two or three times as much. You bought 0:07:43.600 --> 0:07:46.800 g E stock because it paid out a dividend, So 0:07:47.240 --> 0:07:49.560 it would take a long time, but you would eventually 0:07:49.560 --> 0:07:52.640 make more money than you invested if that dividend were 0:07:52.680 --> 0:07:56.720 to hold steady. Now, when Welch took over, the stock 0:07:56.760 --> 0:07:59.680 price actually dipped a little bit after he had been 0:07:59.760 --> 0:08:02.760 run ge for a year or two, but another year 0:08:02.840 --> 0:08:06.280 later the entire stock market took a turn and it 0:08:06.280 --> 0:08:08.800 started to climb in value. This would be the beginning 0:08:08.880 --> 0:08:13.080 of eighteen years of a climbing market, a bull market 0:08:13.120 --> 0:08:16.200 in other words, even with events like Black Monday in 0:08:16.280 --> 0:08:19.600 Night seven taken into account, so you had moments where 0:08:19.640 --> 0:08:22.440 the market was not bullish, where it was crashing, but 0:08:22.840 --> 0:08:25.680 it would recover and then go back on its bullish 0:08:26.240 --> 0:08:30.600 route trajectory. If you will now collectively the SMP five 0:08:30.680 --> 0:08:35.920 hundred index, it would climb by two thousand and this 0:08:36.000 --> 0:08:38.360 was the same time that we started seeing packages like 0:08:38.720 --> 0:08:43.040 four oh one K plans replaced traditional retirement plans. Now 0:08:43.080 --> 0:08:47.120 that meant that stock market performance would become far more 0:08:47.160 --> 0:08:50.559 important to weigh more people. Like in the old days, 0:08:51.000 --> 0:08:53.920 it was just people who traded in stocks, and largely 0:08:54.000 --> 0:08:56.319 it was a lot of businesses that did that trading. 0:08:56.600 --> 0:08:59.440 Your average person didn't play the stock market that much. 0:09:00.040 --> 0:09:03.679 But now stuff like our retirement was tied directly into 0:09:03.679 --> 0:09:08.800 stock market performance. So suddenly everybody was really really focusing 0:09:08.840 --> 0:09:12.520 on the stock market, and it meant that it became 0:09:12.640 --> 0:09:15.559 far more important for stocks to do well. See before 0:09:15.600 --> 0:09:19.160 the nineteen eighties, stock market performance was you know, it 0:09:19.200 --> 0:09:22.120 was an indicator of a company's overall health, but most 0:09:22.120 --> 0:09:26.080 people didn't consider it the metric against which all companies 0:09:26.120 --> 0:09:29.599 should stand. You would worry more about the company's profitability, 0:09:29.600 --> 0:09:31.840 how much revenue is it bringing in, how much does 0:09:31.880 --> 0:09:34.200 it cost to do business, and how much profit is 0:09:34.200 --> 0:09:37.680 the company making. The share price wasn't as big a deal. 0:09:38.160 --> 0:09:41.320 That changed around the same time that Welch took over 0:09:41.360 --> 0:09:45.720 at GE, and Welch's philosophy happened to match this general 0:09:45.800 --> 0:09:49.719 shift in how businesses operated in the United States. Now, 0:09:49.760 --> 0:09:53.480 I don't say this to diminish Welch's contributions or GEES 0:09:53.520 --> 0:09:59.320 performance because the company's own stock outperformed the general market significantly. 0:09:59.679 --> 0:10:02.160 But I do also want to take the overall market 0:10:02.200 --> 0:10:05.240 performance into consideration, because while I don't want to take 0:10:05.240 --> 0:10:08.400 any credit away, I also don't want to give too 0:10:08.480 --> 0:10:12.200 much credit to Welch and his impact beyond what it 0:10:12.280 --> 0:10:17.280 actually was. Anyway, as the market improved, and as GEES 0:10:17.320 --> 0:10:21.880 performance in particular made its stock price rocket upwards, ge 0:10:22.040 --> 0:10:25.560 stocks were seen as more than just a dividend payout. 0:10:25.880 --> 0:10:29.000 The company continued to pay dividends, though, which again is 0:10:29.000 --> 0:10:32.160 going to be important later. Those dividends were largely funded 0:10:32.200 --> 0:10:35.640 by the incredible performance of g E Capital, that's the 0:10:35.760 --> 0:10:40.440 financial services division of General Electric. In the last year 0:10:40.559 --> 0:10:45.520 of Welch's tenure as CEO, gees stock price did take 0:10:45.679 --> 0:10:49.160 several hits, but then so did just about everybody else. 0:10:49.559 --> 0:10:53.160 In March two thousand, the stock markets performance shifted. It 0:10:53.240 --> 0:10:56.440 was no longer bullish. It was going into a bear market, 0:10:56.600 --> 0:11:00.560 so instead of growing, it was receding. The dot com 0:11:00.600 --> 0:11:03.280 bubble had crashed and that caused a bit of a 0:11:03.280 --> 0:11:06.440 stock market crisis. Companies that were in the dot com 0:11:06.520 --> 0:11:09.560 industry obviously they suffered the most. Many of them just 0:11:09.960 --> 0:11:12.760 were blinking out of existence after it became clear that 0:11:13.360 --> 0:11:16.160 those companies had no way to deliver upon the promises 0:11:16.200 --> 0:11:19.400 that they were making or to be able to justify 0:11:19.440 --> 0:11:23.440 the crazy speculation that drove their stock prices into the 0:11:23.480 --> 0:11:26.120 stratosphere before the companies had even figured out how to 0:11:26.200 --> 0:11:30.560 generate ascent in revenue. But even companies like General Electric, 0:11:30.720 --> 0:11:37.000 which were traditional, established, giant conglomerate companies, were affected by 0:11:37.040 --> 0:11:40.160 this change in the market. Between March two thousand and 0:11:40.160 --> 0:11:43.760 when Welch would hand over the CEO role to his successor, 0:11:44.120 --> 0:11:47.959 Jeff Emilt, in early September two thoe, the stock price 0:11:48.040 --> 0:11:51.079 for g E had fallen by twenty four percent. Now 0:11:51.080 --> 0:11:54.720 I point that out because often the simplified story about 0:11:54.800 --> 0:11:58.760 what happened to GE was that Jack Welch stepped down 0:11:59.080 --> 0:12:02.320 and Immolt fumbled the ball, that Emilt was a terrible 0:12:02.360 --> 0:12:06.240 CEO and he could not follow Welch's lead. But in reality, 0:12:06.480 --> 0:12:09.720 I think the story is far more nuanced, and we 0:12:09.760 --> 0:12:12.840 have to remember that the market itself was changing during 0:12:12.880 --> 0:12:16.360 this transition. It wasn't the case of Emilt being handed 0:12:16.440 --> 0:12:19.600 a profitable company on a silver platter and nothing was 0:12:19.640 --> 0:12:23.560 going wrong, and he just messed it up from there. Uh, 0:12:23.600 --> 0:12:25.800 he did make a ton of decisions that would not 0:12:25.920 --> 0:12:27.880 turn out to be great for Ge. So I don't 0:12:27.920 --> 0:12:31.720 want to diminish his responsibility either. I just think it's 0:12:31.760 --> 0:12:35.559 important for us to take all these factors into consideration. Okay. 0:12:35.600 --> 0:12:38.959 So Welch stepped down on September six, two thousand one. 0:12:39.040 --> 0:12:42.280 Emilt took over on September seven, and four days later, 0:12:42.600 --> 0:12:45.360 the United States was rocked by a series of terrorist 0:12:45.440 --> 0:12:49.640 attacks that shook the country to its core. Those effects 0:12:49.679 --> 0:12:55.199 were widespread. The tragedy touched thousands of people directly, tens 0:12:55.280 --> 0:12:59.400 of thousands millions of people indirectly. It transformed the New 0:12:59.480 --> 0:13:03.280 York City Escape permanently, and it caused disruption in the 0:13:03.320 --> 0:13:06.800 markets as well. Wall Street made the decision to not 0:13:06.960 --> 0:13:10.440 open the New York Stock Exchange the morning of September eleven, 0:13:10.640 --> 0:13:14.120 two thousand one, fearing that the terrorist attacks would prompt 0:13:14.280 --> 0:13:19.640 panic selling amongst shareholders, making a truly horrible situation even 0:13:19.679 --> 0:13:23.440 more dire. Both the New York Stock Exchange and the 0:13:23.520 --> 0:13:29.320 NASDAC would remain closed until September two thousand one, when 0:13:29.360 --> 0:13:33.040 trading resumed, The market fell by nearly seven hundred points. 0:13:33.360 --> 0:13:36.760 That was a decline of almost mobile actually more than 0:13:37.080 --> 0:13:41.200 seven percent, and that was just the first day of trading. 0:13:41.280 --> 0:13:46.040 Losses actually continued throughout that week. I hate even talking 0:13:46.080 --> 0:13:49.160 about this, but it is important in order for us 0:13:49.200 --> 0:13:54.160 to understand ges story. At this stage in the company's history, 0:13:54.400 --> 0:13:58.880 business philosophies had changed significantly in the United States in 0:13:58.920 --> 0:14:02.000 the nineteen eighties and nine nineties. We had created a 0:14:02.040 --> 0:14:06.160 new environment where share value was the most important metric 0:14:06.360 --> 0:14:09.640 for a business, the company's stock price. If the stock 0:14:09.679 --> 0:14:13.199 price was going up, that was good. That was pretty 0:14:13.280 --> 0:14:16.720 much the end all be all. A company wasn't thought 0:14:16.720 --> 0:14:20.120 of doing well unless its stock price was growing year 0:14:20.200 --> 0:14:23.240 over year, or at least the overall value of the 0:14:23.280 --> 0:14:26.080 company when you take in at stock. Because of course, 0:14:26.240 --> 0:14:29.280 companies can do things like stock splits so that the 0:14:29.360 --> 0:14:32.720 price of an individual shaff stock goes down, but because 0:14:32.760 --> 0:14:35.360 you've doubled the number of stocks or a number of 0:14:35.400 --> 0:14:38.040 shares i should say, out on the market, the value 0:14:38.040 --> 0:14:41.560 of the company itself remains stable and can continue to grow. 0:14:42.200 --> 0:14:45.560 This drove a lot of business decisions that put shareholders 0:14:45.640 --> 0:14:50.480 above just about everything else in the company, including customers. Now, 0:14:50.520 --> 0:14:53.680 in my opinion, It's one of the biggest economic mistakes 0:14:54.320 --> 0:14:57.760 made in recent decades, as it has created a world 0:14:57.840 --> 0:15:01.880 in which many company executives Phoe becus very much on 0:15:02.040 --> 0:15:05.680 the short term to mid term gains as opposed to 0:15:05.840 --> 0:15:09.760 long term strategies. So often I think companies are making 0:15:09.840 --> 0:15:13.760 choices that hurt the company's chances to survive in the 0:15:13.840 --> 0:15:17.160 long term, all in an effort to drive that stock 0:15:17.200 --> 0:15:22.640 market price further up. Anyway, this disaster impacted gees stock 0:15:22.720 --> 0:15:26.720 price along with countless other companies, and you can't lay 0:15:26.760 --> 0:15:31.000 that blame on Emilt. It's not his fault that this 0:15:31.240 --> 0:15:35.320 series of awful attacks happened four days after he took 0:15:35.480 --> 0:15:38.560 control of the company. In the wake of nine eleven, 0:15:38.960 --> 0:15:43.200 all airline operations in the United States stopped for several days. 0:15:43.520 --> 0:15:46.480 That had a direct impact on gees business, which included 0:15:46.520 --> 0:15:49.720 building stuff like jet engines for the airlines and also 0:15:50.000 --> 0:15:53.680 leasing out parts for various companies. All of that was 0:15:53.720 --> 0:15:57.200 put on hold. On top of that, gees insurance business 0:15:57.520 --> 0:16:00.200 was suddenly inundated with claims which to come and he 0:16:00.320 --> 0:16:02.840 had to make good on For one thing, ge was 0:16:02.880 --> 0:16:06.320 responsible for the insurance policy for the World Trade Center, 0:16:06.360 --> 0:16:09.200 which as I'm sure you all know lost the two 0:16:09.240 --> 0:16:12.880 towers that made the center iconic back in two thousand 0:16:12.920 --> 0:16:16.280 one as a result of those attacks. Prior to September eleven, 0:16:16.720 --> 0:16:19.560 it wasn't unusual for ge to lean a bit heavily 0:16:19.680 --> 0:16:24.040 on ge capital to kind of smooth things over. The 0:16:24.080 --> 0:16:27.280 branch was so profitable, that division of ge was so 0:16:27.360 --> 0:16:31.320 profitable that could help conceal if another division weren't quite 0:16:31.520 --> 0:16:36.080 doing so well. A lot of gees accounting practices have 0:16:36.360 --> 0:16:39.840 over the years been called opaque, meaning that you might 0:16:39.920 --> 0:16:42.920 get the end result of how well the overall company 0:16:42.960 --> 0:16:46.160 is doing, but you might not know how it got there, 0:16:46.480 --> 0:16:49.400 which divisions are doing well versus which ones are not. 0:16:49.920 --> 0:16:52.920 The overall performance of the company was what mattered, right, 0:16:53.000 --> 0:16:56.640 so who cares what's happening in the individual divisions. Well, 0:16:56.680 --> 0:16:59.440 Emil would get to work selling off parts of gees 0:16:59.520 --> 0:17:02.600 insurance business, though the company would still maintain some of 0:17:02.640 --> 0:17:05.600 that business up to present day. I'll explain more about 0:17:05.640 --> 0:17:08.600 that in a little bit. And he also began to 0:17:08.640 --> 0:17:12.719 look at possible acquisitions. So what things turn out well, 0:17:13.440 --> 0:17:18.919 we'll find out. But spoiler alert, no they don't. But 0:17:19.000 --> 0:17:21.639 before I get into that, let's take a quick break. 0:17:29.240 --> 0:17:31.600 One thing I want to mention before I forget it 0:17:31.640 --> 0:17:35.680 is that during Emilt's run as CEO of GE, there 0:17:35.720 --> 0:17:39.280 was a particularly wasteful practice going on that would later 0:17:39.320 --> 0:17:42.160 get a lot of media attention when it was made public. 0:17:42.760 --> 0:17:46.399 Emilt traveled a lot. He would meet with various GE 0:17:46.560 --> 0:17:49.640 executives and facilities all around the world, as well as 0:17:49.680 --> 0:17:54.359 with other company and industry leaders and politicians. Particularly, he 0:17:54.400 --> 0:17:55.960 would do this when he was on the lookout for 0:17:56.040 --> 0:17:59.560 possible acquisitions, and he made a lot of those as 0:17:59.600 --> 0:18:02.119 he was the EO of g E. Now, to hop 0:18:02.200 --> 0:18:04.120 over to the other side of the world, he would 0:18:04.160 --> 0:18:08.240 take one of the g E owned business jets. They 0:18:08.280 --> 0:18:11.680 had six of them. But here's the curious thing. Every 0:18:11.680 --> 0:18:14.840 time you would travel, there would be a second empty 0:18:14.960 --> 0:18:18.960 jet that would follow along behind and stay at the 0:18:19.000 --> 0:18:22.400 same airport and wait there. And then when Emilt would 0:18:22.440 --> 0:18:26.320 fly back, so did the empty jet. Now the justification 0:18:26.400 --> 0:18:30.920 for that practice, which again eventually became public, in which 0:18:30.920 --> 0:18:35.200 a jet carrying only a crew no passengers, would burn 0:18:35.280 --> 0:18:38.639 through fuel it would generate pollution. The justification was that 0:18:38.760 --> 0:18:43.880 Emilt was a very important person on very important business 0:18:44.359 --> 0:18:47.919 and yes, I capitalized very important in my notes in 0:18:47.960 --> 0:18:53.080 this section. As such, he couldn't be delayed by mechanical failures. 0:18:53.280 --> 0:18:56.520 His business was far too important. So the empty jet 0:18:57.040 --> 0:19:01.160 was essentially a backup transport in cases Mary should experience 0:19:01.160 --> 0:19:04.680 a mechanical delay. It was his just in case measure, 0:19:05.240 --> 0:19:10.200 a very expensive, wasteful measure. The company would actually stop 0:19:10.320 --> 0:19:13.200 that practice in two thousand fourteen, which was a few 0:19:13.240 --> 0:19:16.879 years before Emilt would be replaced as CEO. Spoiler alert, 0:19:16.920 --> 0:19:19.639 will get there, all right, So back to the post 0:19:19.760 --> 0:19:23.399 two thousand one g E. In two thousand two, ge 0:19:23.400 --> 0:19:27.040 would acquire a business from a formerly huge company. That 0:19:27.080 --> 0:19:30.000 company was in Ron, which went bankrupt in two thousand 0:19:30.040 --> 0:19:33.280 one after its own massive scandal, which I'm not going 0:19:33.320 --> 0:19:36.360 to get into here it's outside the purview of this episode. 0:19:36.600 --> 0:19:38.680 But one of the many parts of in Ron to 0:19:38.760 --> 0:19:42.760 go up on the auction block after the bankruptcy was 0:19:42.920 --> 0:19:47.120 a wind power business. Emilt was, in his own words, 0:19:47.359 --> 0:19:51.640 not enthusiastic about wind power. He felt wind power wasn't 0:19:51.720 --> 0:19:55.000 profitable and it was too dependent upon subsidies, and those 0:19:55.000 --> 0:19:58.280 subsidies could disappear at any time, according to which way 0:19:58.400 --> 0:20:01.359 any government budget might be headed. So there was no 0:20:01.400 --> 0:20:04.600 way to control that. If the subsidies went away, you'd 0:20:04.600 --> 0:20:09.320 be saddled with a really expensive and nonprofitable business. But 0:20:09.640 --> 0:20:13.119 EMIL gave the authority to executives who really believed in 0:20:13.119 --> 0:20:15.880 that acquisition to go forward with it, and they went 0:20:15.920 --> 0:20:19.080 and purchased the division. It would end up becoming profitable 0:20:19.240 --> 0:20:22.840 and perhaps should have served as a lesson for future 0:20:22.920 --> 0:20:25.639 emilt And I'll get back into what I mean about 0:20:25.680 --> 0:20:28.240 that in just a little bit. In two thousand three, 0:20:28.560 --> 0:20:32.119 ge announced its intention to purchase a majority stake in 0:20:32.240 --> 0:20:35.960 Universal Pictures. That was a company that was under the 0:20:36.000 --> 0:20:39.520 control of another company called Vivendi, a French company. In 0:20:39.640 --> 0:20:43.639 this deal, g E would acquire eighty percent of Universal. 0:20:44.200 --> 0:20:47.200 Vivindi was going through kind of a financial crisis at 0:20:47.200 --> 0:20:51.640 the time, so g E merged Universal with NBC, creating 0:20:51.920 --> 0:20:56.280 NBC Universal and the deal included several cable television channels 0:20:56.320 --> 0:20:59.800 like Sci Fi Network, USA Network, as well as the 0:20:59.840 --> 0:21:03.640 un Reversal film studio the Universal Theme Parks. It did 0:21:03.680 --> 0:21:07.600 not include Universal Music that would remain completely under Vivendi's control, 0:21:07.680 --> 0:21:10.520 but lots of the other Universal properties were part of 0:21:10.560 --> 0:21:14.920 this deal. Vivendi would have twenty control of this, and 0:21:14.960 --> 0:21:20.440 then UH you would have GE with control and you 0:21:20.560 --> 0:21:24.480 got INBC Universal. GE would not hold onto this property forever. 0:21:25.160 --> 0:21:27.960 G was acquiring other companies as well at this time, 0:21:27.960 --> 0:21:31.600 adding them to the various divisions of General Electric. GE 0:21:31.640 --> 0:21:38.080 Healthcare was growing with companies like UH Instrumentarium and Amersham Plc. 0:21:38.440 --> 0:21:41.520 Those were being added as part of g E Healthcare. 0:21:41.920 --> 0:21:45.399 G Capital was also growing with similar acquisitions, including some 0:21:45.440 --> 0:21:48.159 subprime mortgage loan companies, and we'll get into that in 0:21:48.200 --> 0:21:51.359 a bit. And GE would also build out its industrial, 0:21:51.520 --> 0:21:55.840 consumer and energy businesses and made several acquisitions of companies 0:21:55.880 --> 0:21:59.760 in the oil industry, also in banking and that old 0:22:00.040 --> 0:22:03.920 horse of fossil fuels in general, because he really believed 0:22:03.960 --> 0:22:08.439 that that was going to be the mainstay for energy 0:22:08.480 --> 0:22:11.840 production or electricity production. I guess I should say for 0:22:11.880 --> 0:22:15.600 the foreseeable future. Throughout this time, GE Capital would remain 0:22:15.680 --> 0:22:18.760 the most profitable division of General Electric, and so the 0:22:18.760 --> 0:22:22.760 company would lean more heavily upon GE Capital in order 0:22:22.800 --> 0:22:26.160 to do things like pay out that dividend to shareholders 0:22:26.760 --> 0:22:29.919 that set up GE for disaster. Just a couple of 0:22:29.960 --> 0:22:34.480 years after GE purchased subprime mortgage businesses, the world plunged 0:22:34.600 --> 0:22:38.359 into a global economic crisis, which we often refer to 0:22:38.480 --> 0:22:41.919 as the two thousand eight financial crisis, but really the 0:22:41.960 --> 0:22:46.480 crisis first started becoming apparent in two thousand seven with 0:22:46.600 --> 0:22:49.639 the subprime mortgage market. So what the heck is a 0:22:49.640 --> 0:22:55.120 subprime mortgage Well, the short answer is it's an incredibly risky, predatory, 0:22:55.160 --> 0:23:00.240 and irresponsible market practice that depends upon people who are 0:23:00.600 --> 0:23:03.640 some of the most vulnerable folks out there. Maybe that's 0:23:03.680 --> 0:23:06.080 just me putting my own bias on things, but it's 0:23:06.080 --> 0:23:08.080 hard for me to see the whole concept as anything 0:23:08.080 --> 0:23:11.400 other than dumb and harmful. But here's how it breaks down, 0:23:11.720 --> 0:23:14.160 all right. So you know about credit scores, right, They're 0:23:14.200 --> 0:23:16.760 supposed to represent how much of a risk or a 0:23:16.880 --> 0:23:19.359 lack of risk a person is when it comes to 0:23:19.359 --> 0:23:21.960 paying off debt like loans. So if you have a 0:23:22.040 --> 0:23:25.000 high credit score, it means your history shows that you're 0:23:25.040 --> 0:23:28.199 diligent about paying off debt and that you represent a 0:23:28.240 --> 0:23:30.760 low risk for future loans. It does not mean that 0:23:30.800 --> 0:23:33.240 you've never had debt. You want to have some debt 0:23:33.359 --> 0:23:34.560 and then you want to be able to pay it 0:23:34.600 --> 0:23:37.480 off because that's what gets you that high credit score. 0:23:37.640 --> 0:23:40.000 But if you have a low credit score. It means 0:23:40.040 --> 0:23:42.600 that in the eyes of a lender, you represent a risk. 0:23:42.880 --> 0:23:45.720 Maybe you have a spotty employment history, maybe you have 0:23:45.760 --> 0:23:48.640 a lot of outstanding debt, maybe you've missed some payments 0:23:48.680 --> 0:23:51.639 on some loans. The purpose of these credit scores is 0:23:51.640 --> 0:23:55.800 to give lenders enough information to make responsible loan agreements. 0:23:56.480 --> 0:24:00.600 Subprime lending involves giving loans to high risk in individuals, 0:24:00.880 --> 0:24:04.600 and typically you pair this with really high interest rates 0:24:04.720 --> 0:24:08.000 and other restrictions in order to mitigate the risk you 0:24:08.080 --> 0:24:10.679 incur when you give a loan out to one of 0:24:10.720 --> 0:24:13.359 these people who have a very low credit score. And 0:24:13.400 --> 0:24:16.000 so people who are looking to buy homes or to 0:24:16.119 --> 0:24:20.280 take out other loans were securing the money through financial 0:24:20.280 --> 0:24:24.960 institutions with these subprime mortgages and subprime loans, but with 0:24:25.200 --> 0:24:29.879 incredibly punishing restrictions on those loans, and surprise, surprise, a 0:24:29.920 --> 0:24:32.760 lot of folks found it impossible to pay off that debt, 0:24:33.160 --> 0:24:36.000 and ultimately many of the companies that were making those 0:24:36.040 --> 0:24:39.120 loans found themselves in a hole that they had dug 0:24:39.200 --> 0:24:43.159