A few e-mailers have made the argument that the Obama administration may have conducted its first media bailout, whether purposefully or inadvertently, but actually the fault lies with the outgoing Bush administration. Today’s Washington Post reports that FDIC regulators stretched its definition of “banking” to include General Electric in its bailout last fall. The parent company of NBC and its spinoffs also has a large credit division, but qualified for its government assistance by owning a couple of small banks in Utah:
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 FDIC action took place last October, in the middle of the meltdown. The program was specifically intended to exclude industrials like GE, but the company applied anyway and lobbied hard for its inclusion. The FDIC allowed GE to buy its loan guarantees in the TLGP program, but excluded GE competitors like CIT Group. As a result, GE is thriving, and its competition has been hobbled.
No one has lost money in this exchange, as the FDIC has not had a single loan default in its TLGP. However, this shows why government needs to stay out of the private sector. GE could have raised its own capital without FDIC guarantees, and in fact should have done so. At the same time that GE got a government-granted competitive advantage in the market, it was also exempted from the intrusive regulation of executive compensation as other TLGP beneficiaries received as a condition of their assistance. And no one can explain how that happened, either.
But no one can blame Obama for this debacle. GE’s admission to TLGP took place before Obama won the election, and months before he took office. The Post reports that Obama wants to tighten eligibility now in a move that could kick GE out, but now it’s a moot point. The FDIC already did the damage to GE’s competitors.
Update: I probably should have made this clearer, but I was being sarcastic about the “media bailout” aspect of the story. Some e-mailers suggested it, but I don’t think George Bush would have gone out of his way to bail out MS-NBC’s parent company for their sake.