General Electric announced today that it’s getting out of the lending business, selling off most of its financial arm, GE Capital, over the next couple of years. First up is a big chunk of its real estate business, which it’s offloading to Blackstone. That leaves GE, the industrial company – a producer of jet engines and other things that go “vrroom.”
Historically, GE’s lending business was a very small portion of the company, says Tom O’Boyle, author of “At Any Cost: Jack Welch, General Electric, and the Pursuit of Profit.” That changed when Jack Welch took the helm in the early ‘80s.
“Jack Welch saw bonanza in finance,” says Jeff Madrick, a senior fellow at the Century Foundation and the author of “Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present.”
He says the company realized it could make lots of money in finance with far fewer employees than manufacturing, eventually becoming “a full-fledged mortgage lender and a sub-prime mortgage lender.” Now, Madrick says GE’s getting out of a business it never fully understood. Moreover, the financial industry is more competitive now with lower profits.
It’s not that finance is dying, says Jim Wilcox, a professor at U.C. Berkeley’s Haas School of Business.
“Instead, I would say the bubble’s popped,” he says. “The damage was done, but now we’re going to have a financial sector that’s going to be sturdier, and it’s going to be sturdier because it’ll be the serious devoted firms that remain.” He adds that the remaining firms are also more heavily regulated.
Marketplace is on a mission.
We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.
Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?