General Electric, the world’s largest industrial company, has quietly become the biggest beneficiary of one of the government’s key rescue programs for banks.
At the same time, GE has avoided many of the restrictions facing other financial giants getting help from the government.
The company did not initially qualify for the program, under which the government sought to unfreeze credit markets by guaranteeing debt sold by banking firms. But regulators soon loosened the eligibility requirements, in part because of behind-the-scenes appeals from GE.
As a result, GE has joined major banks collectively saving billions of dollars by raising money for their operations at lower interest rates. Public records show that GE Capital, the company’s massive financing arm, has issued nearly a quarter of the $340 billion in debt backed by the program, which is known as the Temporary Liquidity Guarantee Program, or TLGP. The government’s actions have been “powerful and helpful” to the company, GE chief executive Jeffrey Immelt acknowledged in December.
GE’s finance arm is not classified as a bank. Rather, it worked its way into the rescue program by owning two relatively small Utah banking institutions, illustrating how the loopholes in the U.S. regulatory system are manifest in the government’s historic intervention in the financial crisis.
“We’d like to regulate companies according to what they do, rather than what they call themselves or how they charter themselves,” said Andrew Williams, a Treasury spokesman.
Who doesn’t believe that if the government closes this loophole others will be found or created by bribe… er, um, campaign fund hungry politicians for big companies?
I can’t expressly state just exactly what the following cleverly demonstrates. Note the “issue” doesn’t really change even if the guest has stayed the night?
It is the month of August, on the shores of the Black Sea. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.
Suddenly, a rich tourist comes to town.
He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.
The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher.
The Butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.
The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel.
The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town’s prostitute that in these hard times, gave her “services” on credit.
The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.
The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.
At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.
No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism..
And that, ladies and gentlemen, is how the United States Government is doing business today.
SO—LITTLE HELP? What does the above demonstrate?
Meh. While it sounds like they used some underhanded methods to get in on the money I think GE was probably one of the better places for that money to go in terms of keeping the economy moving.
Nothing to see here.
The way the Federal Reserve works is horrifying. Right now, money is rolling off of presses, unbacked by ANYTHING. That’s why it’s wiser to obtain goods and materials right now, instead of money. Barter-able goods, preferably. Silver and Gold is good, too.
#1, bobbo, it shows your ability to construct clever scenarios. 🙂
The fact that money circulates isn’t what is important, per se, it is all the new stuff which the money is used to exchange for.
@ 1
‘No one earned anything’ – isn’t on the money. The hotel ‘earned’ -100 euros, and that’s how the debt was paid off. As now the hotel owner has lost the debter (the prostitute), and has no net financial gain.
Bill O’Reilly is going to have a field day (several field days actually) ripping apart this Obama / GE / NBC cabal.
Can I print my own monopoly money?
So now our Corporate Overlords are GE rather than Monsanto?
Another example of the inept government being owned by competent businessmen.
It’s the same old song. Government tries to limit business, and the businessmen find a way around the limitations.
It’s like intellectually pitting a bunch of kindergardeners against college grads.
Bobbo, love the scenario. Very clever!
@#9 “Another example of the inept government being owned by competent businessmen.” I’d say more example of corrupt Govt. paying off the propaganda services to a crooked businessmen.
@#2: “Meh. While it sounds like they used some underhanded methods to get in on the money I think GE was probably one of the better places for that money to go in terms of keeping the economy moving.” – Why? Because they lose money like it’s not theirs (and from now on it isn’t) or because they fund and equip our enemies?
Corruption at the highest levels. Impeach corrupt President and send crooked businessman to jail.
Bobbo – Sure they made out in your scenario. Everyone is e100 richer (except the tourist, who broke even).
The problem is that in your scenario, everyone but the tourist starts at -e100. Then the tourist comes, plops down e100, and everyone cancels out their debt to everyone else, bringing them from -e100 to e0.
Nobody made a *profit*, but that doesn’t mean people didn’t make *money*, or that the economy didn’t move.
#11, Alex, the innkeeper is out e100. The debt was forgiven, but he didn’t get to keep the 100.
It’s not a zero sum game.
Uh…while of probably originally out of bounds of what this money was INTENDED for, does anyone pay attention to the end result? If we had given this money for AIG, WaMu or any other number of actual banks, they would have likely defaulted, but while GE just got ‘lower interest’ rates, GE isn’t in ANY (current) change of default, so the tax payers will get all the x billions back, PLUS interest. So…er…we’re not GIVING billions to GE, we’re LOANING billions which we’re almost guaranteed to get back since they’re not insolvent, PLUS interest. Hell, lets do this with Apple and Wal-Mart too!
#12, “the innkeeper is out e100. The debt was forgiven, but he didn’t get to keep the 100.”
Wrong. The innkeeper still has the e100 worth of meat he originally got from the butcher and never paid for.
The only thing useful to be gotten out of this conveniently circular scenario is that having a money based system is far superior to a barter system, as everybody in the loop used their revenue from selling to the previous person (even though it wasn’t realized until the payment was eventually made) to acquire what they wanted from the next person. The hotel owner wouldn’t be enjoying meat for dinner because the butcher didn’t need a room in trade, but the prostitute did, and so forth.
#12 – “the innkeeper is out e100. The debt was forgiven, but he didn’t get to keep the 100.
It’s not a zero sum game.”
Not true.
The inkeeper starts at -e100 (he owes the butcher). He gets e100 from the tourist and pays the butcher, bringing his debt to 0 (and, admittedly, his profits to 0 as well).
Then he gets e100 from the prostitute, who owed *him* money. He is now e100 rich. Moments later, however, the tourist says he doesn’t want to stay in the hotel, rendering the initial contract moot and creating a new debt between tourist and innkeeper – the innkeeper now owes the tourist e100 for “services not rendered” (as it were.) Thus, he must pay the tourist – e100.
Thus everyone was elevated e100.
(It gets *slightly* more complicated if you factor in what everyone was expecting from everyone else – but I think we can all agree that “actual money” is better than “pretend, soon to be given money.” You can simplify this by expressing this problem in terms of owed favors instead of money – the innkeeper owed the butcher e100, the butcher owed someone else e100 so he can tell the other dude “collect it from the innkeeper” and so on until it gets back to the prostitute who owed the innkeeper – thus canceling everyone’s debt to begin with. The point here is you’re all looking at this in terms of *cash*, when a fully functioning economy is much broader than simple currency exchange.
(After all, a dollar bill isn’t really a dollar bill – it’s a promise by the government to cover your $1 debt to whomever you gave it to. This used to be more overt in the days of the gold/silver standard [a dollar was just a lighter, easy-to-carry version of a dollar’s worth of gold or silver] but the same basic principles apply now.)
@ 14 + 15
I take it back – and Sea Lawyer I think you are right.
The confusing aspect is that initially everybody has a balance of zero. They have a creditor and a debter of 10 euro.
All the customers money does is trigger a collapsing of circular ring of debter/s collector/s. Before the customer takes his 10 Euro back everybody is at 0 except the hotel, which has 10 euro (from the prostitute). When the hotel customer gets his money back – everybody is back to 0.
Although the last bit about optimism etc is a big disingenuous, as although they have wiped out their debt, they have also lost a creditor.
Now if they had to pay interest on their debt – then that adds an interesting situation. Assuming all of their interest rates are the same, as a group there debt and credit would spiral upwards exponentially over time. Yikes. This would make them less happy – not least because they are more and more reliant on their creditor to pay up. If their creditor defaults they could be liable to a potentially huge amount of money – despite originally having a balance of 0.
So there may be some analogies to whats going on out there after all 😉
No wonder MSNBC is so in the tank for Obama! Follow the money.
Bill O’reilly has been vehemently stating that GE is corrupt for quite some time. Now we are hearing some of the details from some other news sources finally. Will the liberals get it? Ever see those GE ecomagination commercials. So pretty. They never tell you about how windmills use nuclear power. Yes they do.
Money in the right hand talks and the people are bleeped but hey. The government will take care of us.
Sort of like the Mafia does.
“GE’s finance arm is not classified as a bank. Rather, it worked its way into the rescue program by owning two relatively small Utah banking institutions”
That, and they probably also drove a truck load of money up to some Congressman’s house. They’re not made of stone, ya know.
#14, #15, One could simplify the whole deal and say the innkeeper owes the butcher e100 for the meat and the butcher owes the innkeeper e100 for the room. In that case the tourist’s extraneous e100 has nothing to do with it, so I retract my earlier statement.
One could also complicate matters and say the innkeeper starts out at -e200 — he owes the butcher but is also out an e100 room from the hooker. When all is said and done, the innkeeper still isn’t paid for the room as the tourist ran off with e100.
So, which is it?
“One could also complicate matters and say the innkeeper starts out at -e200 — he owes the butcher but is also out an e100 room from the hooker. When all is said and done, the innkeeper still isn’t paid for the room as the tourist ran off with e100.
So, which is it?”
Your take is slightly incorrect. He’s out 100 from the hooker, yes, but this isn’t a *debt*, it’s a loan for which he is the creditor. The hooker still owes him e100, and he still owes the butcher e100. So really, the entire system is a wash, since everyone has a debt of 100 from one party and credit of 100 from another party, and given the cyclical nature of the system (it all comes back to the innkeeper) then what *should* have happened is that all debts were cancelled long before the tourist ever got there. (This is simple transition – if A owes B 100, and B owes C 100, and C owes A 100, then C can just tell B he’s collecting from A and then cancel his already extant debt with A.)
And, again, the innkeeper doesn’t make off worse than before because, once the tourist cancels his deal with the innkeeper, the innkeeper has a debt to the tourist, which he promptly pays back with the 100 note.
lol, bobbo should be tickled that his post has gotten far more consideration than it deserved.