Speaker 1: Welcome to Tech Stuff, a production from I Heart Radio.
Speaker 1: Hey there, and welcome to tech Stuff. I'm your host,
Speaker 1: Jonathan Strickland. I'm an executive producer with iHeart Radio, and
Speaker 1: I love all things tech and it is time for
Speaker 1: us to conclude the g E Saga. Now. These were
Speaker 1: a series of episodes that originally published back in two
Speaker 1: thousand nineteen. I did reruns this week because in case
Speaker 1: you hadn't listened to any of the other ones, I'm
Speaker 1: on vacation this week. I am. I am vacating. Actually,
Speaker 1: as you listen to this, I'm probably getting ready to
Speaker 1: head back to Atlanta. But yes, I was on vacation
Speaker 1: and I didn't want to leave you without any episodes. So,
Speaker 1: because GE recently announced it was going to split up
Speaker 1: into three separate companies in the near future, I thought
Speaker 1: it would be good to go back and review the
Speaker 1: history of Ural Electric. It's a long and storied and
Speaker 1: at times very bumpy history, and so we are going
Speaker 1: to listen to the g E of today. Although keep
Speaker 1: in mind the today in that title refers to two
Speaker 1: thousand nineteen, because this episode originally published on September eleven, nineteen.
Speaker 1: I hope you enjoy and I'll talk to you again,
Speaker 1: really really soon, like next week when I'm back in
Speaker 1: the office. We have come to the end of our
Speaker 1: journey covering the history of General Electric up to today,
Speaker 1: and just a heads up, this episode is going to
Speaker 1: focus a lot on the business side of General Electric
Speaker 1: rather than the tech side of General Electric. I could
Speaker 1: have ended this series with the last episode as far
Speaker 1: as the technological innovations go. And that's not to say
Speaker 1: GE hasn't continued to innovate in the post Jack Welch era,
Speaker 1: but rather that the innovations the company is most known
Speaker 1: for span the previous one years of its existence. The
Speaker 1: last twenty years, the most recent twenty years have been
Speaker 1: more marked with controversy and business practices and market issues.
Speaker 1: And I think it's important to understand what's happened since
Speaker 1: two thousand one because GE has been such an incredibly
Speaker 1: important part of the modern technological landscape. I mean, that's
Speaker 1: one of the main companies that helped spread the electrical
Speaker 1: infrastructure in the United States. You know, without GE, it
Speaker 1: would have taken much longer for that to have happened,
Speaker 1: and the world would be very different today if GE
Speaker 1: had not existed. But in the last episode, I told
Speaker 1: you guys about Jack Welch, the g E CEO who
Speaker 1: pushed the company to incredible profitability, mainly by selling off
Speaker 1: businesses where General Electric wasn't in first or second place
Speaker 1: in the industry. He sold off more than seventy of
Speaker 1: g S businesses just in his first two years of
Speaker 1: being CEO. He also laid off more than one hundred
Speaker 1: thousand employees, which earned him the nickname Neutron Jack, because
Speaker 1: like a neutron bomb, he eliminated people without damaging the assets.
Speaker 1: And he also led efforts to acquire financial institutions like
Speaker 1: banks and insurance companies in order to launch this financial
Speaker 1: and insurance business, and that would end up giving g
Speaker 1: E an enormous revenue boost. It would become incredibly important
Speaker 1: for the company in the nineteen eighties and beyond for
Speaker 1: different reasons. Now. One exception to Welch's amazing victories was
Speaker 1: an acquisition of a securities firm called Kidder, Peabody and Company,
Speaker 1: which was actually an even older company than General Electric.
Speaker 1: If you looked at the origin for Kidder, Peabody and Company,
Speaker 1: that firm traced its history all the way back to
Speaker 1: eighteen sixty five, more than a decade before even the
Speaker 1: earliest of companies that formed General Electric. Welch led the
Speaker 1: acquisition effort in nineteen six, But then there were a
Speaker 1: series of scandals centered around insider trading that brought a
Speaker 1: lot of suspicion and scrutiny on Kidder Peabodies business and
Speaker 1: therefore GE Capital, the financial division of General Electric. And
Speaker 1: a year after the acquisition, the global stock markets crashed
Speaker 1: on October nineteenth, n seven and what was called Black Monday.
Speaker 1: The combination of events convinced Welch that he had made
Speaker 1: an error in judgment acquiring Kidder Peabody, and it took
Speaker 1: several more years and more scandals centering on Kidder Peabodies
Speaker 1: record keeping and allegations of reporting false profits, but GE
Speaker 1: would eventually sell Kidder Peabody off at a huge loss.
Speaker 1: Now that embarrassment aside, GE for the most part did
Speaker 1: very well in the eighties and nineties. The stock price
Speaker 1: for g E rose four thousand percent. Some sources state
Speaker 1: that when you take all the factors into consideration, it
Speaker 1: was more like five thousand two. Under Welch's command, he
Speaker 1: put off his retirement in order to secure an acquisition
Speaker 1: of Honeywell International. If you listen to my last episode,
Speaker 1: you know that didn't go well. The European Commission denied
Speaker 1: the merger for anti competitive reasons, and the man who
Speaker 1: hated to lose, Jack Welch, had to go out on
Speaker 1: a down note. But compared to GE, you could say
Speaker 1: Jack Welch got off easy. Now, this episode will cover
Speaker 1: what happened to General Electric since two thousand one, including
Speaker 1: the events that would create massive problems for the huge company.
Speaker 1: And there is ongoing disagreement as to whether most of
Speaker 1: the blame should fall on Welch's successor, or if Welch
Speaker 1: himself should shoulder some of that responsibility or some other party.
Speaker 1: So what the heck actually happened? Well, first, let me
Speaker 1: talk a little bit about g S stock, because that's
Speaker 1: going to come back around later in this episode a
Speaker 1: few times. So, for years, g E paid out a
Speaker 1: dividend on its stock. Not all companies do this, and
Speaker 1: a dividend is a payment that a company makes to
Speaker 1: distribute some of its revenue to its shareholders. So a
Speaker 1: company makes money and then distributes some of that money
Speaker 1: amongst the people who hold shares in the company. It's
Speaker 1: usually not very much per share. In fact, it's typically
Speaker 1: less than a dollar. Ges case, it was around thirty
Speaker 1: one cents for a long time. In the US, there
Speaker 1: are no rules about how frequently a company actually pays
Speaker 1: out dividends. Most companies will do it quarterly, so you
Speaker 1: would get one quarter of your dividend four times a year.
Speaker 1: So if it was a dividend of forty cents, that
Speaker 1: means every three months you would get a check for
Speaker 1: ten cents for every share you own. So it's not
Speaker 1: very much, but if you own a lot of shares,
Speaker 1: it starts to add up. And besides distributing revenue, it's
Speaker 1: also meant to incentivize shareholders to reinvest and buy more
Speaker 1: shares of stock in that company. So the idea is, oh,
Speaker 1: you got a dividend payout, it's enough for you to
Speaker 1: buy another share in the company, So you spend that
Speaker 1: dividend buying another share. That's the logic there. Well, when
Speaker 1: Welch first took over g E stock wasn't doing so great,
Speaker 1: it wasn't super high. A lot of investors thought of
Speaker 1: the stocks as essentially a dividend payout and not much else,
Speaker 1: so you wouldn't buy g E stocks with the idea
Speaker 1: of selling them at a higher price leader on the road.
Speaker 1: You know, you weren't thinking, I'm gonna buy now, because
Speaker 1: in five or ten years this stock is going to
Speaker 1: be worth two or three times as much. You bought
Speaker 1: g E stock because it paid out a dividend, So
Speaker 1: it would take a long time, but you would eventually
Speaker 1: make more money than you invested if that dividend were
Speaker 1: to hold steady. Now, when Welch took over, the stock
Speaker 1: price actually dipped a little bit after he had been
Speaker 1: run ge for a year or two, but another year
Speaker 1: later the entire stock market took a turn and it
Speaker 1: started to climb in value. This would be the beginning
Speaker 1: of eighteen years of a climbing market, a bull market
Speaker 1: in other words, even with events like Black Monday in
Speaker 1: Night seven taken into account, so you had moments where
Speaker 1: the market was not bullish, where it was crashing, but
Speaker 1: it would recover and then go back on its bullish
Speaker 1: route trajectory. If you will now collectively the SMP five
Speaker 1: hundred index, it would climb by two thousand and this
Speaker 1: was the same time that we started seeing packages like
Speaker 1: four oh one K plans replaced traditional retirement plans. Now
Speaker 1: that meant that stock market performance would become far more
Speaker 1: important to weigh more people. Like in the old days,
Speaker 1: it was just people who traded in stocks, and largely
Speaker 1: it was a lot of businesses that did that trading.
Speaker 1: Your average person didn't play the stock market that much.
Speaker 1: But now stuff like our retirement was tied directly into
Speaker 1: stock market performance. So suddenly everybody was really really focusing
Speaker 1: on the stock market, and it meant that it became
Speaker 1: far more important for stocks to do well. See before
Speaker 1: the nineteen eighties, stock market performance was you know, it
Speaker 1: was an indicator of a company's overall health, but most
Speaker 1: people didn't consider it the metric against which all companies
Speaker 1: should stand. You would worry more about the company's profitability,
Speaker 1: how much revenue is it bringing in, how much does
Speaker 1: it cost to do business, and how much profit is
Speaker 1: the company making. The share price wasn't as big a deal.
Speaker 1: That changed around the same time that Welch took over
Speaker 1: at GE, and Welch's philosophy happened to match this general
Speaker 1: shift in how businesses operated in the United States. Now,
Speaker 1: I don't say this to diminish Welch's contributions or GEES
Speaker 1: performance because the company's own stock outperformed the general market significantly.
Speaker 1: But I do also want to take the overall market
Speaker 1: performance into consideration, because while I don't want to take
Speaker 1: any credit away, I also don't want to give too
Speaker 1: much credit to Welch and his impact beyond what it
Speaker 1: actually was. Anyway, as the market improved, and as GEES
Speaker 1: performance in particular made its stock price rocket upwards, ge
Speaker 1: stocks were seen as more than just a dividend payout.
Speaker 1: The company continued to pay dividends, though, which again is
Speaker 1: going to be important later. Those dividends were largely funded
Speaker 1: by the incredible performance of g E Capital, that's the
Speaker 1: financial services division of General Electric. In the last year
Speaker 1: of Welch's tenure as CEO, gees stock price did take
Speaker 1: several hits, but then so did just about everybody else.
Speaker 1: In March two thousand, the stock markets performance shifted. It
Speaker 1: was no longer bullish. It was going into a bear market,
Speaker 1: so instead of growing, it was receding. The dot com
Speaker 1: bubble had crashed and that caused a bit of a
Speaker 1: stock market crisis. Companies that were in the dot com
Speaker 1: industry obviously they suffered the most. Many of them just
Speaker 1: were blinking out of existence after it became clear that
Speaker 1: those companies had no way to deliver upon the promises
Speaker 1: that they were making or to be able to justify
Speaker 1: the crazy speculation that drove their stock prices into the
Speaker 1: stratosphere before the companies had even figured out how to
Speaker 1: generate ascent in revenue. But even companies like General Electric,
Speaker 1: which were traditional, established, giant conglomerate companies, were affected by
Speaker 1: this change in the market. Between March two thousand and
Speaker 1: when Welch would hand over the CEO role to his successor,
Speaker 1: Jeff Emilt, in early September two thoe, the stock price
Speaker 1: for g E had fallen by twenty four percent. Now
Speaker 1: I point that out because often the simplified story about
Speaker 1: what happened to GE was that Jack Welch stepped down
Speaker 1: and Immolt fumbled the ball, that Emilt was a terrible
Speaker 1: CEO and he could not follow Welch's lead. But in reality,
Speaker 1: I think the story is far more nuanced, and we
Speaker 1: have to remember that the market itself was changing during
Speaker 1: this transition. It wasn't the case of Emilt being handed
Speaker 1: a profitable company on a silver platter and nothing was
Speaker 1: going wrong, and he just messed it up from there. Uh,
Speaker 1: he did make a ton of decisions that would not
Speaker 1: turn out to be great for Ge. So I don't
Speaker 1: want to diminish his responsibility either. I just think it's
Speaker 1: important for us to take all these factors into consideration. Okay.
Speaker 1: So Welch stepped down on September six, two thousand one.
Speaker 1: Emilt took over on September seven, and four days later,
Speaker 1: the United States was rocked by a series of terrorist
Speaker 1: attacks that shook the country to its core. Those effects
Speaker 1: were widespread. The tragedy touched thousands of people directly, tens
Speaker 1: of thousands millions of people indirectly. It transformed the New
Speaker 1: York City Escape permanently, and it caused disruption in the
Speaker 1: markets as well. Wall Street made the decision to not
Speaker 1: open the New York Stock Exchange the morning of September eleven,
Speaker 1: two thousand one, fearing that the terrorist attacks would prompt
Speaker 1: panic selling amongst shareholders, making a truly horrible situation even
Speaker 1: more dire. Both the New York Stock Exchange and the
Speaker 1: NASDAC would remain closed until September two thousand one, when
Speaker 1: trading resumed, The market fell by nearly seven hundred points.
Speaker 1: That was a decline of almost mobile actually more than
Speaker 1: seven percent, and that was just the first day of trading.
Speaker 1: Losses actually continued throughout that week. I hate even talking
Speaker 1: about this, but it is important in order for us
Speaker 1: to understand ges story. At this stage in the company's history,
Speaker 1: business philosophies had changed significantly in the United States in
Speaker 1: the nineteen eighties and nine nineties. We had created a
Speaker 1: new environment where share value was the most important metric
Speaker 1: for a business, the company's stock price. If the stock
Speaker 1: price was going up, that was good. That was pretty
Speaker 1: much the end all be all. A company wasn't thought
Speaker 1: of doing well unless its stock price was growing year
Speaker 1: over year, or at least the overall value of the
Speaker 1: company when you take in at stock. Because of course,
Speaker 1: companies can do things like stock splits so that the
Speaker 1: price of an individual shaff stock goes down, but because
Speaker 1: you've doubled the number of stocks or a number of
Speaker 1: shares i should say, out on the market, the value
Speaker 1: of the company itself remains stable and can continue to grow.
Speaker 1: This drove a lot of business decisions that put shareholders
Speaker 1: above just about everything else in the company, including customers. Now,
Speaker 1: in my opinion, It's one of the biggest economic mistakes
Speaker 1: made in recent decades, as it has created a world
Speaker 1: in which many company executives Phoe becus very much on
Speaker 1: the short term to mid term gains as opposed to
Speaker 1: long term strategies. So often I think companies are making
Speaker 1: choices that hurt the company's chances to survive in the
Speaker 1: long term, all in an effort to drive that stock
Speaker 1: market price further up. Anyway, this disaster impacted gees stock
Speaker 1: price along with countless other companies, and you can't lay
Speaker 1: that blame on Emilt. It's not his fault that this
Speaker 1: series of awful attacks happened four days after he took
Speaker 1: control of the company. In the wake of nine eleven,
Speaker 1: all airline operations in the United States stopped for several days.
Speaker 1: That had a direct impact on gees business, which included
Speaker 1: building stuff like jet engines for the airlines and also
Speaker 1: leasing out parts for various companies. All of that was
Speaker 1: put on hold. On top of that, gees insurance business
Speaker 1: was suddenly inundated with claims which to come and he
Speaker 1: had to make good on For one thing, ge was
Speaker 1: responsible for the insurance policy for the World Trade Center,
Speaker 1: which as I'm sure you all know lost the two
Speaker 1: towers that made the center iconic back in two thousand
Speaker 1: one as a result of those attacks. Prior to September eleven,
Speaker 1: it wasn't unusual for ge to lean a bit heavily
Speaker 1: on ge capital to kind of smooth things over. The
Speaker 1: branch was so profitable, that division of ge was so
Speaker 1: profitable that could help conceal if another division weren't quite
Speaker 1: doing so well. A lot of gees accounting practices have
Speaker 1: over the years been called opaque, meaning that you might
Speaker 1: get the end result of how well the overall company
Speaker 1: is doing, but you might not know how it got there,
Speaker 1: which divisions are doing well versus which ones are not.
Speaker 1: The overall performance of the company was what mattered, right,
Speaker 1: so who cares what's happening in the individual divisions. Well,
Speaker 1: Emil would get to work selling off parts of gees
Speaker 1: insurance business, though the company would still maintain some of
Speaker 1: that business up to present day. I'll explain more about
Speaker 1: that in a little bit. And he also began to
Speaker 1: look at possible acquisitions. So what things turn out well,
Speaker 1: we'll find out. But spoiler alert, no they don't. But
Speaker 1: before I get into that, let's take a quick break.
Speaker 1: One thing I want to mention before I forget it
Speaker 1: is that during Emilt's run as CEO of GE, there
Speaker 1: was a particularly wasteful practice going on that would later
Speaker 1: get a lot of media attention when it was made public.
Speaker 1: Emilt traveled a lot. He would meet with various GE
Speaker 1: executives and facilities all around the world, as well as
Speaker 1: with other company and industry leaders and politicians. Particularly, he
Speaker 1: would do this when he was on the lookout for
Speaker 1: possible acquisitions, and he made a lot of those as
Speaker 1: he was the EO of g E. Now, to hop
Speaker 1: over to the other side of the world, he would
Speaker 1: take one of the g E owned business jets. They
Speaker 1: had six of them. But here's the curious thing. Every
Speaker 1: time you would travel, there would be a second empty
Speaker 1: jet that would follow along behind and stay at the
Speaker 1: same airport and wait there. And then when Emilt would
Speaker 1: fly back, so did the empty jet. Now the justification
Speaker 1: for that practice, which again eventually became public, in which
Speaker 1: a jet carrying only a crew no passengers, would burn
Speaker 1: through fuel it would generate pollution. The justification was that
Speaker 1: Emilt was a very important person on very important business
Speaker 1: and yes, I capitalized very important in my notes in
Speaker 1: this section. As such, he couldn't be delayed by mechanical failures.
Speaker 1: His business was far too important. So the empty jet
Speaker 1: was essentially a backup transport in cases Mary should experience
Speaker 1: a mechanical delay. It was his just in case measure,
Speaker 1: a very expensive, wasteful measure. The company would actually stop
Speaker 1: that practice in two thousand fourteen, which was a few
Speaker 1: years before Emilt would be replaced as CEO. Spoiler alert,
Speaker 1: will get there, all right, So back to the post
Speaker 1: two thousand one g E. In two thousand two, ge
Speaker 1: would acquire a business from a formerly huge company. That
Speaker 1: company was in Ron, which went bankrupt in two thousand
Speaker 1: one after its own massive scandal, which I'm not going
Speaker 1: to get into here it's outside the purview of this episode.
Speaker 1: But one of the many parts of in Ron to
Speaker 1: go up on the auction block after the bankruptcy was
Speaker 1: a wind power business. Emilt was, in his own words,
Speaker 1: not enthusiastic about wind power. He felt wind power wasn't
Speaker 1: profitable and it was too dependent upon subsidies, and those
Speaker 1: subsidies could disappear at any time, according to which way
Speaker 1: any government budget might be headed. So there was no
Speaker 1: way to control that. If the subsidies went away, you'd
Speaker 1: be saddled with a really expensive and nonprofitable business. But
Speaker 1: EMIL gave the authority to executives who really believed in
Speaker 1: that acquisition to go forward with it, and they went
Speaker 1: and purchased the division. It would end up becoming profitable
Speaker 1: and perhaps should have served as a lesson for future
Speaker 1: emilt And I'll get back into what I mean about
Speaker 1: that in just a little bit. In two thousand three,
Speaker 1: ge announced its intention to purchase a majority stake in
Speaker 1: Universal Pictures. That was a company that was under the
Speaker 1: control of another company called Vivendi, a French company. In
Speaker 1: this deal, g E would acquire eighty percent of Universal.
Speaker 1: Vivindi was going through kind of a financial crisis at
Speaker 1: the time, so g E merged Universal with NBC, creating
Speaker 1: NBC Universal and the deal included several cable television channels
Speaker 1: like Sci Fi Network, USA Network, as well as the
Speaker 1: un Reversal film studio the Universal Theme Parks. It did
Speaker 1: not include Universal Music that would remain completely under Vivendi's control,
Speaker 1: but lots of the other Universal properties were part of
Speaker 1: this deal. Vivendi would have twenty control of this, and
Speaker 1: then UH you would have GE with control and you
Speaker 1: got INBC Universal. GE would not hold onto this property forever.
Speaker 1: G was acquiring other companies as well at this time,
Speaker 1: adding them to the various divisions of General Electric. GE
Speaker 1: Healthcare was growing with companies like UH Instrumentarium and Amersham Plc.
Speaker 1: Those were being added as part of g E Healthcare.
Speaker 1: G Capital was also growing with similar acquisitions, including some
Speaker 1: subprime mortgage loan companies, and we'll get into that in
Speaker 1: a bit. And GE would also build out its industrial,
Speaker 1: consumer and energy businesses and made several acquisitions of companies
Speaker 1: in the oil industry, also in banking and that old
Speaker 1: horse of fossil fuels in general, because he really believed
Speaker 1: that that was going to be the mainstay for energy
Speaker 1: production or electricity production. I guess I should say for
Speaker 1: the foreseeable future. Throughout this time, GE Capital would remain
Speaker 1: the most profitable division of General Electric, and so the
Speaker 1: company would lean more heavily upon GE Capital in order
Speaker 1: to do things like pay out that dividend to shareholders
Speaker 1: that set up GE for disaster. Just a couple of
Speaker 1: years after GE purchased subprime mortgage businesses, the world plunged
Speaker 1: into a global economic crisis, which we often refer to
Speaker 1: as the two thousand eight financial crisis, but really the
Speaker 1: crisis first started becoming apparent in two thousand seven with
Speaker 1: the subprime mortgage market. So what the heck is a
Speaker 1: subprime mortgage Well, the short answer is it's an incredibly risky, predatory,
Speaker 1: and irresponsible market practice that depends upon people who are
Speaker 1: some of the most vulnerable folks out there. Maybe that's
Speaker 1: just me putting my own bias on things, but it's
Speaker 1: hard for me to see the whole concept as anything
Speaker 1: other than dumb and harmful. But here's how it breaks down,
Speaker 1: all right. So you know about credit scores, right, They're
Speaker 1: supposed to represent how much of a risk or a
Speaker 1: lack of risk a person is when it comes to
Speaker 1: paying off debt like loans. So if you have a
Speaker 1: high credit score, it means your history shows that you're
Speaker 1: diligent about paying off debt and that you represent a
Speaker 1: low risk for future loans. It does not mean that
Speaker 1: you've never had debt. You want to have some debt
Speaker 1: and then you want to be able to pay it
Speaker 1: off because that's what gets you that high credit score.
Speaker 1: But if you have a low credit score. It means
Speaker 1: that in the eyes of a lender, you represent a risk.
Speaker 1: Maybe you have a spotty employment history, maybe you have
Speaker 1: a lot of outstanding debt, maybe you've missed some payments
Speaker 1: on some loans. The purpose of these credit scores is
Speaker 1: to give lenders enough information to make responsible loan agreements.
Speaker 1: Subprime lending involves giving loans to high risk in individuals,
Speaker 1: and typically you pair this with really high interest rates
Speaker 1: and other restrictions in order to mitigate the risk you
Speaker 1: incur when you give a loan out to one of
Speaker 1: these people who have a very low credit score. And
Speaker 1: so people who are looking to buy homes or to
Speaker 1: take out other loans were securing the money through financial
Speaker 1: institutions with these subprime mortgages and subprime loans, but with
Speaker 1: incredibly punishing restrictions on those loans, and surprise, surprise, a
Speaker 1: lot of folks found it impossible to pay off that debt,
Speaker 1: and ultimately many of the companies that were making those
Speaker 1: loans found themselves in a hole that they had dug
Speaker 1: themselves and it was too deep to climb out. Everyone
Speaker 1: was put in an awful situation and it had a
Speaker 1: really big ripple effect. Part of that ripple led to
Speaker 1: an investment bank called Lemon Brothers collapsing in September of
Speaker 1: two thousand eight. Other major financial institutions were in danger
Speaker 1: of following suit. The whole thing was leading to a
Speaker 1: global economic collapse, with the financial industry on the brink
Speaker 1: of total disaster. That's when various parties swooped in to
Speaker 1: rescue the situation, bailing out banks that had overextended themselves.
Speaker 1: This in turn ticked off a lot of folks who
Speaker 1: are directly affected by this problem. These were people who
Speaker 1: had been evicted from their homes because they weren't able
Speaker 1: to make their mortgage payments, or people who are otherwise
Speaker 1: hurt by the subprime mortgage crisis, either directly or indirectly.
Speaker 1: And it didn't help that many of these people saw
Speaker 1: the bailouts as being rewards for the same financial institutions
Speaker 1: that caused all the misery in the first place. Well.
Speaker 1: Ge Capital was one of those institutions, and it was
Speaker 1: hit hard by the two thousand eight crisis. Worse, because
Speaker 1: General Electric was so dependent upon ge Capital for revenue,
Speaker 1: it put all of General Electric at risk. To help
Speaker 1: whether the storm, the company announced it would attempt to
Speaker 1: raise twelve billion dollars through a common stock offering or
Speaker 1: in Buffett Investor Extraordinaire also helped out by investing billions
Speaker 1: of dollars in GE. In retrospect, many analysts have said
Speaker 1: that GE was playing an increasingly dangerous game since Welch
Speaker 1: had transformed GE Capital from a small division that helped
Speaker 1: consumers get financing to purchase big appliances like refrigerators, into
Speaker 1: a global financial institution. Gees more traditional divisions like it's
Speaker 1: lighting business, industrial equipment business, medical equipment business, it's a
Speaker 1: via Asian businesses. All of these secured for the company
Speaker 1: the respect of Wall Street because they were dependable parts
Speaker 1: of GE. They could make a dependable revenue, and they
Speaker 1: were traditional, They had a long history with the company
Speaker 1: that gave the company a lot of room to swing
Speaker 1: for the fences with GE Capital and thus engage in
Speaker 1: more risky behaviors in an effort to win big payoffs,
Speaker 1: drive that stock market price up, and again pay out
Speaker 1: those dividends. And that risk was somewhat necessary because of
Speaker 1: that changing climate of business. So you had to grow
Speaker 1: year over years. Traditional businesses usually had steady performance and
Speaker 1: they did grow, but they grew slowly, so that wasn't
Speaker 1: the kind of performance that would really when you the
Speaker 1: the front cover of various business magazines, you wanted to
Speaker 1: really go for it. So GE Capital was that method.
Speaker 1: That was how GE was going to be the leader.
Speaker 1: Then it became an anchor weighing the company down in
Speaker 1: the wake of this financial crisis. Emil would start trying
Speaker 1: to sell off parts of GE Capital, but it wasn't easy.
Speaker 1: Before Buffett rushed into help, GE famously couldn't secure overnight
Speaker 1: loans to keep the business afloat. Most investors felt it
Speaker 1: was far too risky to pour money into General Electric,
Speaker 1: so the house that Jack built was in danger of
Speaker 1: crashing to its foundations. Even with the influx of investment cash,
Speaker 1: not to mention an incredible one thirty nine billion dollars
Speaker 1: of federal government bailout money, GE was still struggling, and
Speaker 1: one thing barreling down at the company was that dividend payout.
Speaker 1: The dividend made g E stock one of the most
Speaker 1: popular stocks on the market. Tons of people owned g
Speaker 1: E stock because it paid out dividends, but paying out
Speaker 1: that dividend was going to put a huge burden on
Speaker 1: the company, It just wasn't going to have the cash
Speaker 1: to do it, so in two thousand nine, Emil decided
Speaker 1: to cut the dividend from thirty one cents a share
Speaker 1: down to ten cents a share. It would mark only
Speaker 1: the second time the company had reduced its dividend payout.
Speaker 1: The first time had been during the Great Depression, and
Speaker 1: spoiler alert, it would not be the last time they
Speaker 1: would have to cut the dividend. Also, in two thousand nine,
Speaker 1: the company announced its intention to sell off NBC Universal
Speaker 1: to cable provider Comcast. To do that, it would first
Speaker 1: have to a wire the other twenty percent of NBC
Speaker 1: Universal from Vivendi they still had that share. That process
Speaker 1: took some time, so it wasn't until two thousand eleven
Speaker 1: that GE would sell off a majority stake in NBC
Speaker 1: Universal to Comcast. At that time, GE would still retain
Speaker 1: a forty nine share in the company, although it did
Speaker 1: have the intention to sell the rest of those shares
Speaker 1: off a few years later. Uh This would become a
Speaker 1: common plot element and a source of jokes in the
Speaker 1: series Thirty Rock, just as ges ownership of NBC Universal
Speaker 1: had been a source for humor previously in that series.
Speaker 1: Two years later in Comcast would arrange to purchase the
Speaker 1: entirety of NBC Universal from g E, and g E
Speaker 1: would get out of the entertainment and media business and
Speaker 1: it would use some of that money to cover some
Speaker 1: of the debt that GE had accrued following the two
Speaker 1: thousand eight financial crisis. The NBC Universal deal was just
Speaker 1: one of several that GE pursued in the first decade
Speaker 1: of the two thousands. The company looked to sell off
Speaker 1: some of its businesses and divisions in an effort to
Speaker 1: refocus on core strategies. Emilt kept working on ways to
Speaker 1: extract g E from g E capital business, and he
Speaker 1: didn't have a whole lot of success with it, and
Speaker 1: he had his eyes set on another company to try
Speaker 1: and turn gees prospects around. The company in question was
Speaker 1: a French company that was making coal powered turbines. In
Speaker 1: other words, it was a company that built stuff for
Speaker 1: the energy electric industry electric utilities, right specifically for fossil
Speaker 1: fuel based power companies. The name of this company was
Speaker 1: Alstom A L S T O M. And, as it
Speaker 1: would turn out, the timing could not have been worse,
Speaker 1: though it is arguable over whether or not that was predictable.
Speaker 1: At that time, Emilt was hoping that Alston would become
Speaker 1: a key component in g ees Power division. He thought
Speaker 1: that GE could take this French company which had been
Speaker 1: struggling financially and used GES processes and pra this is
Speaker 1: to turn Alstom around. Then he would use Alstom to
Speaker 1: meet the electricity demands of clients all over the world,
Speaker 1: and all with fossil fuel based turbines. So what went wrong, Well,
Speaker 1: I'll tell you after we take this quick break. Not
Speaker 1: everyone at g was crazy about acquiring Alstom. Several executives
Speaker 1: felt that the asking price was far too high, but
Speaker 1: Emma was optimistic that g E could take Alstom and
Speaker 1: turn it into a profitable business. As it turns out,
Speaker 1: he wouldn't get the chance to stick around long enough
Speaker 1: to see how far Allston would fall. But I'm not
Speaker 1: quite there yet. GE needed to do something. The company's
Speaker 1: oil and gas services, which revolved around actually extracting oil,
Speaker 1: you know, making the equipment that would be used for
Speaker 1: that sort of stuff. Those were on the decline as
Speaker 1: energy prices were collapsing. But the power division, GE Power,
Speaker 1: the part of GE that actually reduced equipment that was
Speaker 1: used to generate electricity that was still a reliable revenue source.
Speaker 1: In fact, at that point it was the largest source
Speaker 1: of revenue for GE, and it had a high profit
Speaker 1: margin to boot. G E made a lot of money
Speaker 1: from that particular division. So if g E could do
Speaker 1: the same thing for Alstom and turn things around, then
Speaker 1: in Emilt's mind, the company would have a rock solid
Speaker 1: foundation from which to work. But a few big factors
Speaker 1: would hamper the success of Alstom. One was that there
Speaker 1: just wasn't as big a demand for turbines as Emilt
Speaker 1: had anticipated. They got fewer orders than what they were
Speaker 1: hoping for. In places like the United States, power companies
Speaker 1: were improving efficiencies and so they were able to do
Speaker 1: more with less. There wasn't as big a demand to
Speaker 1: add additional infrastructure to meet consumer needs. Then there was
Speaker 1: the fact that Alstom's employees were very highly compensated, which
Speaker 1: was good for them, but rough for GE. And regulations
Speaker 1: in the EU meant that Emilt couldn't just pull a
Speaker 1: jack well and start laying off employees in an effort
Speaker 1: to cut costs. EU had protections in place to prevent
Speaker 1: that sort of thing, so you couldn't just make the
Speaker 1: books look better by laying off a bunch of people.
Speaker 1: And the EU also blocked one part of the business
Speaker 1: from GE acquiring it. That was Alstom's service business, their
Speaker 1: maintenance business that would have supplied revenue as the company
Speaker 1: would provide maintenance services for its clients. That was off limits.
Speaker 1: And the other major factor was that the cost of
Speaker 1: building out renewable energy systems fell drastically not long after
Speaker 1: GE completed the ten billion dollar acquisition of Alstom in
Speaker 1: two thousand fifteen, So it looked like the wrong bet
Speaker 1: right buying a very expensive fossil fuel based company just
Speaker 1: as renewable energy prices were falling to the point where
Speaker 1: they were uh they could compete against fossil fuels. Now,
Speaker 1: around the same time that the Alstom deal was starting
Speaker 1: to take shape, GE would spin off its credit card business,
Speaker 1: which was part of GE Capital, and it would become
Speaker 1: Synchrony Financial. And I'm guessing it filled a lot of
Speaker 1: folks at GE with a bit of dismay to see
Speaker 1: that once it was free of General Electric, this former
Speaker 1: division actually outperformed all expectations. It did much better on
Speaker 1: its own than it did as part of General Electric.
Speaker 1: On top of that, the oil price crash pushed GE
Speaker 1: to merge its own oil and gas division with a
Speaker 1: company called Baker Hughes, and then g E got a
Speaker 1: majority ownership in the Baker Hughes company became Baker Hughes
Speaker 1: a GE company, at least for the time. Oh and
Speaker 1: two thousand fifteen, GE formed a unit called g E Digital.
Speaker 1: G E had been in various digital products for a while,
Speaker 1: but marked the move for the company to create an
Speaker 1: independent business unit. Most of the unit's focus was on
Speaker 1: a software product called Predicts, sort of a play on Prediction,
Speaker 1: and it was a business to business product. It was
Speaker 1: meant to help big companies like airlines identify strategies and
Speaker 1: managed assets. But over time that unit would experience slow
Speaker 1: revenues and technical issues, and in eighteen there was real
Speaker 1: serious talk of GE potentially selling off the division entirely.
Speaker 1: That is yet to happen. GE Digital still as part
Speaker 1: of GE, but GE did do a few rounds of layoffs,
Speaker 1: so things have not gone smoothly for that part of
Speaker 1: the company. Back to GS leadership woes. In October two
Speaker 1: thousand seventeen, GE announced that Jeff Emilt would be stepping
Speaker 1: down as CEO, and he had served in that role
Speaker 1: for about sixteen years. The company's stock price was around
Speaker 1: a third of what it had been when he took control.
Speaker 1: Emerald had spun off numerous businesses over the years, including
Speaker 1: gees plastics division, if you remember, that's the division that
Speaker 1: Jack Welch had actually come to. He had also spun
Speaker 1: off the appliances business. He's spun off the insurance business,
Speaker 1: or a lot of it anyway, and more. And by
Speaker 1: that time much of the upper leadership at g E
Speaker 1: got caught in a shake up. There were members of
Speaker 1: the board who left, there were other executive members who left,
Speaker 1: and investors, employees, and retirees were all growing more and
Speaker 1: more unhappy. The company had lost and estimated one hundred
Speaker 1: billion dollars worth of shareholder wealth over the previous decade
Speaker 1: and a half. Critics stated the Emilt had a habit
Speaker 1: of chasing after fads, investing in businesses at the peak
Speaker 1: of their visibility and then later selling them off for
Speaker 1: less than what g had paid for them in the
Speaker 1: first place. And people said the ge method was to
Speaker 1: buy high sell low, which in general is the opposite
Speaker 1: of what you want to do. I think O don't. No,
Speaker 1: I'm not a business guy. Not every deal Emilt made
Speaker 1: went sour, by the way, the in Ron deal in
Speaker 1: which g took over that wind power business ended up
Speaker 1: being very profitable, though again Emilt initially opposed that deal,
Speaker 1: and when GE sold off its plastics division it was
Speaker 1: for a higher price than what a lot of analysts expected,
Speaker 1: but generally speaking, the deals didn't break in gees favor
Speaker 1: under Emilt's watch. Emeralt's successor was John Flannery, who had
Speaker 1: up to that point headed up gees healthcare business and
Speaker 1: had worked for GE for thirty years. Flannery's goal was
Speaker 1: to build a strong core for GE around its aviation business,
Speaker 1: its power business, and its healthcare business, and there was
Speaker 1: talk of the possibility that GE itself might break apart
Speaker 1: into several different companies. The reaction to that idea kind
Speaker 1: of fell across the spectrum. Some people saw it as
Speaker 1: a necessity if the various parts of GE were to stabilize.
Speaker 1: Others saw it as the end of a legacy, and
Speaker 1: they had a bit of a point. One of the
Speaker 1: discussions was about possibly selling off ges lightbulb business that
Speaker 1: was the business that started it all, really all the
Speaker 1: way back in eight seventy eight and the Edison Electric
Speaker 1: Light Company. But innovation could sometimes be a double edged sword.
Speaker 1: The move towards l e ED lights, which can last
Speaker 1: for thousands of hours, meant that there just wasn't as
Speaker 1: big a demand for light bulbs anymore. Because if you
Speaker 1: don't have to worry about the lightbulb burning out on
Speaker 1: a regular basis, there's not much call to buy new ones.
Speaker 1: You just buy the l e ed s. You might
Speaker 1: sell your house before you ever have to change that lightbulb.
Speaker 1: So lightbulb sales were starting to drop. There just wasn't
Speaker 1: enough call for them. I bet it made GE long
Speaker 1: for the days when it had formed that secret lightbulb
Speaker 1: Cartel in which companies agreed to limit the useful life
Speaker 1: of a lightbulb through engineering. And things were rough for
Speaker 1: shareholders too. Since GE had cut its dividend payouts a
Speaker 1: few years earlier, the payouts had slowly increased again. They
Speaker 1: had grown up to twenty four cents per share, so
Speaker 1: that was an improvement. It was still below the thirty
Speaker 1: one cents that it it had been at its peak,
Speaker 1: but it was better. But in late, G had to
Speaker 1: cut the dividend again, that time down to twelve sense,
Speaker 1: and then not too long after that they were forced
Speaker 1: to do another cut. They just realized that there just
Speaker 1: wasn't enough money to cover the dividend payout, so the
Speaker 1: dividend got cut down to just one cent per share.
Speaker 1: It just didn't have the money to cover the payments otherwise.
Speaker 1: In addition, G was having to deal with an unexpected cost.
Speaker 1: The company had not issued any long term care insurance
Speaker 1: policies since two thousand six, and in fact, it had
Speaker 1: spun off almost its entire insurance business with a company
Speaker 1: called gen Worth. However, in order to make that deal happen,
Speaker 1: GE was forced to agree to cover any losses from
Speaker 1: long term care insurance. It was just seen as too
Speaker 1: great a financial risk otherwise, so GE signed that agreement. Now,
Speaker 1: those long term care agreements are policies that are meant
Speaker 1: to cover the elderly, and it turned out that insures,
Speaker 1: not just a g E, but across the industry, had
Speaker 1: underestimated how long policy holders would actually live, and the
Speaker 1: medical costs, including things like nursing home fees, would tend
Speaker 1: to get higher as customers got older. So as people
Speaker 1: lived longer, they were creating a larger and larger drain
Speaker 1: on resources for these insurance companies. Like if you looked
Speaker 1: at it from a financial perspective, the person who was
Speaker 1: paying for the policy was getting way more benefits out
Speaker 1: of it than they were paying into it, and that
Speaker 1: was an issue. So this was a huge cost for GE,
Speaker 1: and it's no wonder that the company was continuing to
Speaker 1: try and find ways to get completely out of the
Speaker 1: insurance business. Now. To meet the obligation, Flannery had to
Speaker 1: redirect fifteen billion dollars of GES wealth in two thousand
Speaker 1: eighteen just to cover the obligations of that insurance policy stuff.
Speaker 1: And the company was also hit with a seven and
Speaker 1: a half billion dollar after tax charge, so things were
Speaker 1: really rough. Also in two thousand eighteen, GE would leave
Speaker 1: the dal Jones Industrial Average. If you listen to my
Speaker 1: previous episodes, you remember that GE was one of the
Speaker 1: original companies listed on that average when it was first created,
Speaker 1: and it was the only company of that original list
Speaker 1: that still existed in two thousand eighteen. It had been
Speaker 1: part of the Dow Industrial Average for a hundred eleven years.
Speaker 1: But the performance of the company, along with the perception
Speaker 1: that industrial companies in general weren't really key indicators for
Speaker 1: overall market performance meant that those days were over, so
Speaker 1: in its place, a different company would join the DOW.
Speaker 1: That was Walgreen's Boots Alliance drug store chain company. Meanwhile,
Speaker 1: a problem with most recent heavy duty gas turbines caused
Speaker 1: other issues for General Electric. A utility in Texas had
Speaker 1: to shut down two different power plants for repairs due
Speaker 1: to failures with these new turbines. That news would end
Speaker 1: up hurting GE power sales, which weren't doing super a
Speaker 1: gray at that moment. Already, Flannery's efforts were seen as
Speaker 1: insufficient by the board of directors, and on October one,
Speaker 1: two thousand eighteen, the company announced that Flannery had been
Speaker 1: removed from the position of chairman and CEO, and the
Speaker 1: board appointed an outsider, Lawrence Culp, to serve as the
Speaker 1: new chairman and CEO. Flannery had been CEO for about
Speaker 1: fourteen months and then he was out. That would give
Speaker 1: Flannery the unenviable distinction of having served the least amount
Speaker 1: of time as CEO of all g e C e
Speaker 1: O s, at least so far. Culp would be the
Speaker 1: third CEO to lead the company since two thousand seventeen.
Speaker 1: The company Culp took over, was in turmoil and there
Speaker 1: were pending investigations into g S accounting practices, which had
Speaker 1: for years, as I said earlier, been described as opaque.
Speaker 1: It's polite way of saying the company wasn't making it
Speaker 1: easy to see where money was coming from or where
Speaker 1: it was going to. G E had already settled sec
Speaker 1: charges in the past, but there were others that sought
Speaker 1: to find out more about the finances of the company.
Speaker 1: And then, of course there was no recent report from Marcopolis,
Speaker 1: the guy who was one of the early whistleblowers on
Speaker 1: Bernie made Off before everyone was aware of the Ponzi
Speaker 1: scheme that made Off was running. The Marcopolis report alleges
Speaker 1: that GE is essentially robbing Peter to pay Paul, shifting
Speaker 1: cash around frantically to fend off insolvency. It's kind of
Speaker 1: like a shell game to trying to move money around
Speaker 1: fast enough so that the company doesn't collapse. G E,
Speaker 1: I should add, disputes this report and says that the
Speaker 1: allegations are baseless and it cannot be ignored that Marcopolis
Speaker 1: himself actually stands to make a lot of money should
Speaker 1: ges stocks decline and value. So you could argue there
Speaker 1: is a motive for Marcopolis to try and drag ges
Speaker 1: name in the mud. Uh So their valid arguments on
Speaker 1: either side about whether or not this report is something
Speaker 1: you should pay attention to or if it's something that
Speaker 1: has ulterior motivations behind it. That being said, the fact
Speaker 1: that the Marcopolist report came out doesn't change the fact
Speaker 1: that there were already numerous investigations government investigations into g
Speaker 1: S businesses that could end up hindering the company further.
Speaker 1: So there seems to be smoke. There's just a question
Speaker 1: of is the fire what Marcoupolists is saying or is
Speaker 1: it something else? On top of all the problems the
Speaker 1: company faces is another external force that could really spell doom.
Speaker 1: Many financial analysts say that signs point to another global recession. Already,
Speaker 1: industries like manufacturing and freight are in a bit of
Speaker 1: a slide, so a recession would greatly exacerbate general electrics problems.
Speaker 1: So are we seeing the end of days for a
Speaker 1: company that helped launch the technological age? I don't know.
Speaker 1: I don't feel great about it, but it is a
Speaker 1: very large company. It's not like any of these things
Speaker 1: is definitively the death knell for General Electric. And there's
Speaker 1: a lot of stuff that could happen. We could see
Speaker 1: GE get broken up into smaller companies that individually are
Speaker 1: able to succeed much better than they can collectively. All
Speaker 1: of that remains to be seen, but it was fascinating
Speaker 1: to learn more about this company's incredible, rich history. And UH.
Speaker 1: I know that this last section was much lighter on
Speaker 1: the tech side, as I said at the beginning, but
Speaker 1: at the same time, I thought it was important for
Speaker 1: us to understand how a company that had been so
Speaker 1: instrumental in setting the tone for the technological age could
Speaker 1: be facing extinction UH in two thousand nineteen. So here's
Speaker 1: hoping that things turn around for GE, that the company
Speaker 1: is able to reconcile all these accounting practices, that it
Speaker 1: is able to deliver value two employees to customers, to retirees,
Speaker 1: and two shareholders, not just two shareholders. And that wraps
Speaker 1: up this episode. If you have suggestions for future topics
Speaker 1: of tech stuff, whether it's a company, a technology, a
Speaker 1: concept in tech, anything like that, let me know send
Speaker 1: me an email the addresses tech stuff at how stuff
Speaker 1: works dot com, or draw me a line on Facebook
Speaker 1: or Twitter. The handle of both of those is text
Speaker 1: Stuff hs W. You can also pop on over to
Speaker 1: our website that's tech stuff podcast dot com. You've got
Speaker 1: to find a link to the archive of all of
Speaker 1: our previous episodes there, so you can look up all
Speaker 1: the different stuff we talked about, including the previous episodes
Speaker 1: I did on g S History where Chris Pallette and
Speaker 1: I sat down and talked about it. But the show
Speaker 1: was very different back in those days. But if you
Speaker 1: want to hear a different take on this same sort
Speaker 1: of stuff, you can check that out. That one came out,
Speaker 1: I believe in two thousand twelve. And don't forget. We
Speaker 1: also have a link to our online store where every
Speaker 1: purchase you make goes to help the show and we
Speaker 1: greatly appreciate it, and I will talk to you again
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