This program allows participating companies to issue debt that is backed by the FDIC, which means it is ultimately backed by the taxpayers. Of the $340 billion guaranteed by the program so far, GE's portion is $74 billion at the end of the first quarter of 2009. The government guarantee has a real benefit to GE since with it they are able to borrow at lower rates.
While GE is well known for household appliances, light bulbs, and NBC, I doubt it comes to mind when one thinks of the major financial institutions of the nation. So how did it end up participating in a government bailout of the banking an finance sector? The answer is at first, it didn't.
From the article:
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....
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 now was eligible.
If there is still anyone that believes wealthy and well connected corporations actually prefer a free and competitive marketplace over one where they manipulate government power for their own advantage, please wake up.
No doubt this type of activity goes on at all levels of government throughout the nation. It is perfectly rational for corporate leaders to pursue a strategy to increase profits by securing advantageous government intervention in the market.
This is why those that govern, at any level, should be held to an extremely high standard of accountability. This, however, is only possible when governing is done in the most transparent way possible. Unfortunately, of late we seem to be suffering from a transparency deficit whose only rival for sheer size might be our budgetary one.
***Update: Dad29 has coverage of the second half of this story. Think our government isn't picking winners and losers in the market? Think again and click the link.