As Goes GE, so goes Management

Henry Paulson’s book On the Brink is getting pilloried all over the place. David Wessel raises a point I’ve been hammering for a while:

Jeff Imment, CEO of General Electric, frightened Paulson in early September by calling to say GE, which Paulson describes as “an American business icon,” was having trouble borrowing money by selling IOUs known as commercial paper, and visited Paulson several days later in person. In mid-October, Paulson called Immelt to discuss imminent plans for a Federal Deposit Insurance Corp. guarantee of all new bank debt, but not GE’s. Immelt told him not to worry, GE would manage and would benefit indirectly by a more stable banking system. The next day, Immelt called back and said the bank guarantees were hurting GE’s finance unit because banks could borrow with U.S. government guarantees and GE couldn’t. And on Oct. 16, 2008, Immelt came in person to press the matter with Paulson. Over the following weeks, Paulson and Treasury official David Nason “worked hard to get Sheila [Bair] comfortable” with extending the guarantee to GE. In November, she did. GE’s finance unit…became one of the biggest users of the program.

The transition from “an American icon” to “a poorly-run finance company” had already been made by one “icon.” And its salvation is presented by Paulson as part of a “domino sequence.” Wessel:

The federal rescue of Citi led directly to the rescue of General Motors and Chrysler. “Nancy Pelosi [the speaker of the House]… told me point-blank that it was politically impossible to rescue Citi and not help the automakers. She had until recently opposed bailouts for the car companies, which she considered poorly managed.”

Top management of Citi, last two iterations: Vikram Pandit, Chuck Prince, Bob Rubin, and Richard Parsons.

Top management of GM, last two iterations: Rick Wagoner, Jack Smith, Ed Whitacre, Jr.

As Business Week (via Wikipedia) dryly noted of Smith and Wagoner:

After GM lost $30 billion during a single three-year stretch in the early 1990s, Wagoner and Chairman John F. “Jack” Smith Jr. forced GM “back to basics” to battle “30 years of management mistakes” that left him with little room to maneuver.

I don’t know about anyone else, but I’d take the latter set over the failed hedge fund manager, failed CEO, ineffective Chairman of the Board, and guiding force for TWX behind the AOL/TWX merger.

UPDATE: Jeff Gerth has more on GE’s condition.* American icon, indeed.

*Given Gerth’s track record, the article should be taken with a ten-pound bag of salt.