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Bank Rescue Was ‘Expanded’ For GE

From an unfazed Washington Post:

How a Loophole Benefits GE in Bank Rescue

Industrial Giant Becomes Top Recipient in Debt-Guarantee Program

By Jeff Gerth and Brady Dennis
Monday, June 29, 2009

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.

The Obama administration now wants to close such loopholes as it works to overhaul the financial system. The plan would reaffirm and strengthen the wall between banking and commerce, forcing companies like GE to essentially choose one or the other.

"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…

Unlike other major lenders participating in the debt guarantee program, including Bank of America, Citigroup and J.P. Morgan Chase, GE has never been subject to the Fed’s stress tests or its rules for limiting risk. Also unlike firms that have received bailout money in the Troubled Assets Relief Program, or TARP, GE is not subject to restrictions such as limits on executive compensation.

The debt guarantee program that GE joined is administered by the Federal Deposit Insurance Corp., which was reluctant to take on the new mission, according to current and former officials who were not authorized to speak publicly. The FDIC also initially resisted expanding the pool of eligible companies, fearing it would add more risk to the program, the officials said…

The program emerged during a hectic weekend last October as regulators scrambled to announce a series of rescue efforts before the markets opened.

They found a legal basis for the program in a 1991 law: If a faltering bank posed "systemic risk," then the FDIC, the Fed, the Treasury secretary and the president could agree to give the FDIC more authority to rescue a failing institution. The financial regulators applied the statute broadly, so it would cover the more than 8,000 banks in the FDIC system.

The FDIC hurried to approve the program Oct. 13.

"This was crisis management on steroids," said a person familiar with the process. "A lot was made up on the fly."

The author of the systemic-risk provision, Richard Carnell, now a law professor at Fordham University, says it was intended to apply to a single institution, and that in their rush to find legal footing for unprecedented new programs, regulators "turned the statute on its head."

The FDIC launched the program Tuesday, Oct. 14, the same day Treasury officials announced large capital infusions into nine of the country’s banking giants under TARP. That day, the FDIC also expanded its deposit guarantees to a broader range of accounts…

GE was watching closely. Though GE Capital owned an FDIC-insured savings and loan and an industrial loan company, they accounted for only 3 percent of GE’s assets. Company officials concluded that GE couldn’t meet the program’s eligibility requirements.

So the company requested that the program "be broadened," GE’s Wilkerson said. GE’s main argument was fairness: The FDIC was trying to encourage lending, and GE Capital was one of the country’s largest business lenders.

GE deployed a team of executives and outside attorneys, including Rodgin Cohen, a banking expert with the New York firm Sullivan & Cromwell.

"GE was among the parties that discussed this with the FDIC," along with the Treasury and Fed, according to FDIC spokesman Andrew Gray. He said the details about eligibility "had not been specifically addressed" in the beginning…

Two days later, the FDIC announced a new category of eligible applicants — "affiliates" of an FDIC-insured institution. Bair explained that "there may be circumstances where the program should be extended" to keep credit markets flowing. That meant "certain otherwise ineligible holding companies or affiliates that issue debt" could apply, she said…

GE Capital won approval to enter the FDIC program in mid-November with support from its regulator, the Office of Thrift Supervision. The company used the government guarantee to raise about $35 billion by the end of 2008. By the end of the first quarter of 2009, the total reached $74 billion, helping to cover the company’s 2009 funding needs and about $8 billion of its projected needs for 2010..

Not every finance company has had that peace of mind. One of GE’s competitors in business lending markets, CIT Group, a smaller company, has had a harder time raising cash. It has been unable to persuade the FDIC to allow it into the debt-guarantee program, at least in part because of its lower credit ratings. A recent Standard & Poor’s analysis cited CIT’s "inability to access TLGP" as a factor in the company’s declining financial condition…

Two weeks ago, the Obama administration said it would seek to eliminate the Office of Thrift Supervision and force companies like GE to focus on commerce or banking, but not both. That could require the industrial giant to spin off GE Capital.

Last week, Immelt said GE had no intention of doing that. "GE is and will remain committed to GE Capital, and we like our strategy," he said in a memo to staff…

The FDIC has been working to wean financial institutions off the program. The TLGP originally was slated to end in June, but at the Treasury’s request the FDIC agreed to extend it until Oct. 31. Some participants have stopped using the program, but GE Capital continues to do so for the overwhelming majority of its debt.

Much of the $340 billion in debt will come due in 2012, the year the FDIC guarantees expire. At that point, known in banking circles as the "cliff," the agency will have to make good if companies such as GE are unable to honor their obligations. FDIC officials say they are comfortable that the agency has collected more than enough money to cover potential losses.

Gee, the rules were changed in mid-November.

it looks like being a major propaganda arm for the Obama campaign paid off.

Once again.

The Obama administration now wants to close such loopholes as it works to overhaul the financial system. The plan would reaffirm and strengthen the wall between banking and commerce, forcing companies like GE to essentially choose one or the other.

Something that General Electric has already said it will not do.

They like their “strategy.”

This article was posted by Steve on Monday, June 29th, 2009. Comments are currently closed.

3 Responses to “Bank Rescue Was ‘Expanded’ For GE”

  1. MinnesotaRush says:

    “The Obama administration now wants to close such loopholes as it works to overhaul the financial system.”

    Unless those ‘loopholes’ help out o-blah-blah’s major contributors and financial supporters.

    Isn’t all the ‘overhauling’ mr o-blah-blah and gang have done so far working just so splendidly?!?!

    Fraud!!!

  2. bronzeprofessor says:

    GE owns NBC, MSNBC, and CNBC — and nobody’s making an issue of this? Where is the conservative movement? We should be screaming bloody murder! Seventy years ago, this was a huge issue during the FDR years — GE was forced to dislodge NBC from its family of companies.

    I also don’t understand why nobody’s making an issue or at least investigating the role of Parsons, the former Nixon supporter who was CEO of Time Warner (owner of Time magazine, Warner Bros, and CNN!!!!!) then stepped down from the board of Time Warner in December 2008 and went to Citibank, which promptly got a huge bailout weeks after Pres. Obama took office.

    GE, remeber, stands to make billions from cap and trade because all the new regulations will favor “electric” energy over fossil fuels.

    Lastly, I want conservatives to look into Facebook. The founder of Facebook took a prestigious job in the Obama campaign in 2008. Then when Obama went to Germany, a major legal conflict between Facebook and German law was unfolding. I thought, at the time, I was paranoid to wonder about a link. But now we have to question everything.

    It’s not a question of entertaining rumors or starting urban legends. This is not en par with going crazy over a birth certificate… These are serious legitimate questions about the ethics of media companies, and there is a long history in the US of debating, sometimes fiercely, how to intervene when the people who control our information are also financially tied to one party in government.

    This is an egregious case of propaganda and financial collusion. In the old days it was JP Morgan and folks of his ilk who were sleazy, now it’s media people and liberal Manhattan dwellers.

  3. Right of the People says:

    “These are serious legitimate questions about the ethics of media companies, and there is a long history in the US of debating, sometimes fiercely, how to intervene when the people who control our information are also financially tied to one party in government.”

    BP,
    This is the crux of the problem, the MSM is beholden to the left and the Democrapic Party. The days of the “objective” reporter are far behind us now. When a media outfit like Fox attempts to show both sides and present the actual facts in a story, they get shouted down by the loonies on the left saying that Fox is showing “bias” towards the right. Rupert Murdoch is vilified in the MSM for having the intestinal fortitude to still try to give people the facts, not biased opinions.

    I wonder how these solons of our new world media would like living in a country run by one of their heroes like Hugo Chavez or their old buddy Fidel? Some how I don’t think they’d like those gentlemen’s version of Freedom of Speech.


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