Did "Neutron" Jack Welch Nuke GE?

Summary

Podcast Summary: "Did 'Neutron' Jack Welch Nuke GE?"

Business History by Pushkin Industries, May 6, 2026
Hosts: Jacob Goldstein & Robert Smith

---

Overview

This episode of Business History unpacks the rise and fall of General Electric (GE)—once the world’s most valuable conglomerate—through the prism of its most famous CEO, Jack Welch, known as “Neutron Jack.” The hosts trace GE’s improbable transformation from Edison’s light bulb company to a sprawling financialized powerhouse and examine Welch’s legacy, from his fabled management style to the financial time bomb he left his successor. The episode also touches on corporate America’s changing culture, the risks of financialization, and GE’s eventual breakup.

---

Key Discussion Points and Insights

1. The Origins and Rise of GE

• Founding and Early Growth

  • GE started with Thomas Edison but was molded into an industrial titan by financier J.P. Morgan, who engineered its merger into a monopoly-like conglomerate ([03:05]).
  • Its early strategy: control the "benign cycle of power" by generating electricity, delivering it, and selling the appliances that consumed it ([08:23]).

• GE as The Perfect Conglomerate

  • By the late 20th century, GE owned everything from appliances and medical equipment to NBC and Del Taco ([04:11]); its logo was everywhere, even if the conglomerate as such does not exist anymore.

2. Jack Welch’s Meteoric Rise

• Background and Corporate Ascent

  • Jack Welch, son of a railroad conductor, became known for his charm, confidence, and extraordinary golfing ability—an asset in mid-century corporate America ([10:41]).
  • Known as “Teflon Jack” because nothing seemed to stick to him, even after a major factory explosion early in his career ([12:59]).

• Leadership Transition

  • Succeeded Reginald Jones, representing a shift from modest, bureaucratic leadership to Welch’s brash, winner-take-all bravado ([14:06]).
  • Welch famously wanted GE to mirror his personality: bold and dominant.

3. Welch’s Transformation of GE (“Neutron Jack” Era)

• Radical Refocus

  • Welch’s “three napkin circles”: GE should concentrate on its core businesses—large appliances, high-tech (like medical equipment), and services/finance, while divesting any unit not ranked #1 or #2 in its market ([20:44], [21:41]).
  • Brutal cost-cutting, including the elimination of 100,000 jobs, earning him the moniker “Neutron Jack” ([22:17–26:04]).
  • Notable moment: "[Jack says,] What the fuck do I pay you for?" ([25:49]).

• From Industry to Financialization

  • GE’s real secret: GE Capital. Originally a way to finance appliance sales, it became a gigantic shadow bank, lending far and wide, unburdened by bank regulations ([28:57–30:22]).
  • Welch famously said: "I thought it was easier than bending metal, fooling with money. ... It was easier to make money. It was a home run." ([30:29]).

• Managing Earnings and Perceptions

  • Welch pressured managers to “massage” the numbers, always beating earnings expectations—investors trusted the machine-like regularity ([32:38]).
  • "GE was so big and so good at it, there weren't even questions. This just happened every quarter." ([33:02]).

• Legacy Moves

  • Acquired NBC for strategic reasons (Japanese competition couldn’t legally own U.S. TV networks) ([34:33]).
  • Launched “Six Sigma,” a management fad built around manufacturing precision and statistical quality control, which became part of Welch’s personal brand ([37:29–39:14]).

• Peak GE

  • Under Welch, GE’s earnings increased eightfold, stock rose 40x. He was named “CEO of the Century” ([39:19–39:41]).

4. The Fall: Jeffrey Immelt and the Aftermath

• A Rough Inheritance

  • Immelt, a classic glad-handing salesman, became CEO right before 9/11. The attacks hit the company on all sides—aviation, insurance, and media ([44:15–45:49]).
  • Quote: “On my second day, a plane I lease running on engines I built, crashed into a building I insure, and it was covered by a network I own.” — Jeff Immelt ([45:38])

• Unraveling of the Conglomerate Model

  • Financial crisis revealed that diversity was a liability; investors realized they no longer knew what GE even did ([46:28]).
  • Scrutiny of GE's financial engineering intensified, as more than 40% of profits now came from GE Capital, effectively making GE the seventh largest US bank—without the regulatory oversight ([47:55]).
  • Bill Gross (PIMCO) triggered a crisis of confidence by dumping GE bonds and publishing scathing commentary, highlighting GE’s risky use of $127 billion in short-term commercial paper ([49:16–50:30]).

• Financial Crisis and Collapse

  • As the 2008 crisis unfolded, GE’s ability to roll over its short-term loans evaporated ([56:14]).
  • Jack Welch publicly eviscerated Immelt on CNBC:
    "Here's the screw up. You made a promise that you'd deliver this, and you missed... I'd get a gun out and shoot him if he doesn't make what he promised. Now just deliver the earnings." — Jack Welch ([55:30]).
  • GE narrowly avoided bankruptcy thanks to last-minute government loan guarantees, despite having insisted it wasn't a bank ([57:32]).

5. Legacy and End of an Era

• Aftershocks and Breakup

  • Immelt was ousted in 2017 after a run plagued with embarrassment, including the notorious “second plane” incident—a literal empty backup plane accompanying him globally ([61:09–62:24]).
  • GE was ultimately broken up in 2024: GE Aerospace, GE Healthcare, and GE Vernova (energy) ([62:37–63:33]).

• Bigger Business Lessons

  • The story frames Jack Welch as the “last of the manager-kings,” a bookend to an era that began with Alfred Sloan at GM; the modern era now belongs to the entrepreneurial founder-CEOs rather than corporate lifers ([59:45–60:58]).
  • "In the 1990s, anyone could have run GE. His dog could have run GE. A German shepherd could have run GE. It wasn't Jack Welch. He's saying it was the 90s." — Jeff Immelt ([58:58])

---

Notable Quotes & Memorable Moments

• “GE was the perfect conglomerate…There has never been a company before in human history like GE. And after you hear this story you will know why there will never be such a company ever again.” — Robert Smith ([03:05])

• “Nothing sounds less benign than the benign cycle of power.” — Jacob Goldstein ([08:39])

• “He was the one that should be right. You get a hole in one, you automatically become CEO.” — Robert Smith ([11:57])

• “I thought it was easier than bending metal, fooling with money. … It was easier to make money. It was a home run.” — Jack Welch (quoted by Jacob, [30:29])

• “It's a bank dressed up in a factory costume.” — Robert Smith ([48:38])

• “Here's the screw up. You made a promise that you'd deliver this, and you missed…I'd get a gun out and shoot him if he doesn't make what he promised. Now just deliver the earnings.” — Jack Welch ([55:30])

• “In the 1990s, anyone could have run GE. His dog could have run GE. A German shepherd could have run GE. It wasn't Jack Welch. He's saying it was the 90s.” — Jeff Immelt ([58:58])

---

Timestamps of Key Segments

| Timestamp | Segment / Topic | |--------------|----------------------------------------------------------------------------------------------| | 03:05 | Introduction to GE’s unmatched conglomerate structure | | 10:41 | Jack Welch’s background and ascent through GE’s ranks | | 14:06 | Transition from Reginald Jones to Welch – contrasting leadership styles | | 20:44 | Welch’s “three circles” strategy for refocusing GE | | 21:41 | Firing spree and job cuts; birth of “Neutron Jack”; shift to shareholder primacy | | 28:57 | The secret weapon: GE Capital and the shift to financialization | | 32:38 | How Welch “managed” earnings and always beat Wall Street expectations | | 34:33 | The NBC acquisition and Welch’s competitive logic | | 37:29 | Six Sigma and the management fads of the Welch era | | 39:19 | GE under Welch: biggest company in the world, Fortune’s “CEO of the Century” | | 44:15 | Jeffrey Immelt takes over days before 9/11; diversification turns to disaster | | 47:55 | Bill Gross and PIMCO trigger scrutiny of GE’s financial machinery | | 55:30 | Jack Welch’s brutal criticism on CNBC during the 2008 crash | | 61:09 | Immelt’s private-plane scandal and final corporate humiliation | | 62:37 | The breakup of GE into three separate public companies (GE Aerospace, Healthcare, Vernova) |

---

Tone and Style

Jacob Goldstein and Robert Smith infuse humor, skepticism, and vivid analogies (often sports- or pop-culture-inspired), blending an “inside baseball” sensibility about corporate maneuvering with accessible explanations of business concepts. They poke fun at management fads, call out corporate PR spin, and relish the ironies of GE’s downfall.

---

Conclusion

The downfall of GE isn’t just the result of bad luck or a hapless successor, but rather a cautionary tale about the perils of financial engineering, hubris at the top, and the limits of the conglomerate model. Jack Welch’s legacy looms large—as both the architect of GE’s ascent and the unwitting detonator of its collapse. As the hosts observe, the story of GE is the closing chapter in the age of corporate managers—a world long replaced by founder-driven business empires.

Transcript

[Sponsor/Ad Voice]

This message is a paid partnership with Apple Card. There's something interesting about how seamlessly certain tools fit into daily life. Apple Card is one of those things. It can be applied for right in the Wallet app on iPhone and approval can happen in minutes. So it's ready to use immediately with Apple Pay. I'm so glad the days of finding my wallet, fishing out the credit card, using it, putting it back in my wallet, or oops, maybe I use cash. Where's the atm Enough. The first time I used Apple Pay on my phone with my Apple Card I was like this is the future. There's no going back. With Apple Card purchases earn daily cash up to 3% with no points to track and no waiting for rewards. It's simply daily cash back that I earn on every purchase. There's even an option to open a high yield savings account through Apple Card and while I haven't done it yet, if I do, my daily cash can grow automatically over time without any extra effort. Because Apple Card lives in the Wallet app, it's always accessible on iPhone and can be used with Apple Pay at over 85% of merchants in the US and the security of Face ID and Touch ID prevents unauthorized purchases. Whether using iPhone or Apple watch. To explore it yourself, you can apply for Apple Card in the Wallet app on your iPhone subject to credit approval. Savings is available to Apple Card owners subject to eligibility. Savings in Apple Card by Goldman Sachs Bank USA Salt Lake City Branch Member FDIC terms and [e-mail] this episode is brought to you by Navy Federal Credit Union. May is their favorite because Military Appreciation Month is their time to celebrate those who go above and beyond. They know the military community protects our country, takes care of their families and volunteers in their communities. That's why they've helped the military community for over 90 years. Learn more at navyfederal.org Celebrate and Happy Military Appreciation Month Navy Federal Credit Union Navy Federal is insured by NCUA spring

[Jacob Goldstein]

into deals with stay green premium two cubic foot mulch five bags for dollar plus stay fresh with up to 35% off. Select major appliances and save an additional $100 on select laundry pairs. Our best lineup is here at Lowe's Lowe's we help you save valid through 56 mulch offer excludes Alaska and Hawaii. See Lowes.com for more details.

[Robert Smith]

Visit your nearby Lowes. Pushkin Too quick?

[Jacob Goldstein]

No, it was perfect.

[Robert Smith]

Push kit Stop.

[Jacob Goldstein]

You got it.

[Robert Smith]

General Electric the General ge There has never been a company before in human history like ge. And after you hear this story you will know why there will never be such a company ever again. GE was the perfect conglomerate. A conglomerate meaning a vast, sprawling company with other companies inside it doing wildly different things. GE started with Thomas Edison and the light bulb.

[Jacob Goldstein]

Edison.

[Robert Smith]

General Electric was the original name of the company. And then it proceeded to make just about everything else in modern life.

[Jacob Goldstein]

Give it to me.

[Robert Smith]

Toasters.

[Jacob Goldstein]

Sure.

[Robert Smith]

Microwave ovens, refrigerators, stoves, washing machines, clock radios, smoke alarms. I could go on for 45 minutes. But it also made the turbines that made the electricity. You could commute to work on GE trains you could fly on. GE owned planes with GE engines in hospitals. GE went inside your body. MRIs, cat scanners. GE invented silly putty. No. It did.

[Jacob Goldstein]

It's funny. That's the first surprise of this list to me.

[Robert Smith]

Silly Putty invented at ge. At one point, GE owned the most popular TV network in America. NBC, of course, and the two biggest shows in America, Seinfeld and Friends. It ran Universal Studios, owned Gibson Guitars. It was financing McDonald's franchises, and it owned Del Taco.

[Jacob Goldstein]

It should have gone wrong. Taco Bell. It would have solved all their problems.

[Robert Smith]

They actually did help finance Taco Bell. They did everything. At the turn of the millennium, GE was the most valuable company in the world. And now ge, the conglomerate, does not exist. The products are still there. In fact, we have one in the kitchen of our offices right now, a GE microwave oven. You can still see the round GE logo. But the conglomerate itself has been broken up. And there was one man responsible for both the rise of the company and the fall. I'm Robert Smith. Jacob.

[Jacob Goldstein]

I'm Jacob Goldstein. And this is Business History, a show about the history of business.

[Robert Smith]

The man who propelled GE into the stratosphere was Jack Welch. He was named CEO of the Century by Fortune magazine because, of course, he was the century. The century. In 1999, of course, calling the top. As ever, he was a business legend. He was filled with swagger and charm. He really epitomized business. In the 1980s and 1990s, Jack turned GE from a company that made things, real things, into a company that made money out of money. A money making machine, just kind of like the rest of the American economy. At the time. GE became financialized and like all deals with the devil, and it was a deal with the devil. It works out really well for a while, and then it'll take your soul.

[Jacob Goldstein]

Tell me about Jack.

[Robert Smith]

Always my favorite part of the show, when we have, like four sentences about our lead character, Jack Welch, one tough talking Irish guy from Massachusetts Son of a railroad conductor. He had personality, he had passion, he had infinite self confidence. And in 1981, he became the ninth CEO of General Electric. I picture that hallway and wherever their headquarters is with nine pictures them hanging the Jack Welch one. Schenectady was in Schenectady. Then it was in Fairfield, Connecticut, then it was in Boston. But being CEO of GE has to be the most impossible job in the history of business. Because when Jack becomes CEO, GE now has hundreds of thousands of products, the ones we mentioned, but also little switches, parts of engines, 42 different business units, 29 levels of management.

[Jacob Goldstein]

It's 29.

[Robert Smith]

29. You had to work your way up from the factory floor to CEO. It took 28 jobs.

[Jacob Goldstein]

That doesn't seem like an insane amount to me.

[Robert Smith]

No one in the company understands how everything works, and no one ever did. Except for maybe the founder of the company, Thomas Edison. Thomas Edison.

[Jacob Goldstein]

I mean, it was sort of wasn't quite General Electric yet, Right? Like as we talked about in the Edison Show, Thomas Edison founded Edison General Electric, but then it was JP Morgan who swooped in and basically, against Edison's wishes, merged Edison General Electric with its rivals to create ge. And Edison just sort of walked away in a huff and like, said, oh, I'm just going to reinvent iron mining now. I didn't care about Edison General Electric anyway.

[Robert Smith]

Yeah. And ge, of course, loves to talk about its founder as Thomas Edison, but there's very little Edison DNA in the company because the company is this creature of JP Morgan. Morgan really saw that electricity was going to be huge, obviously, but it also required so much money to build grids and turbines and electricity that if you could become the biggest company, there was this huge barrier to entry. No one could challenge you and say, like, oh, I'm going to build my own grid at this point.

[Jacob Goldstein]

Yeah. I mean, there is something of a natural monopoly, right? Power delivery is regulated as a natural monopoly because it doesn't make sense for two companies to build parallel sets of wires to people's houses. So you might as well win.

[Robert Smith]

If you can, you should be first. And Morgan pushed the new company to buy every small electrical startup they could. The idea from the beginning of GE was to own the whole path of the electron. They called it the benign cycle of power.

[Jacob Goldstein]

Nothing sounds less benign than the benign cycle of power.

[Robert Smith]

GE would generate the electricity, get it to people's homes, and then sell them the appliances that would make them want more electricity.

[Jacob Goldstein]

A fridge.

[Robert Smith]

A fridge takes a lot of electricity.

[Jacob Goldstein]

Everybody's already got light bulbs. We want to sell more electricity. Sell them a fridge.

[Robert Smith]

If you can sell a million fridges, then the power companies have to buy hundreds more turbines, which cost millions and millions of dollars. It was genius.

[Jacob Goldstein]

And also, you are the power company, and so you're selling more power. Right.

[Robert Smith]

And what GE understood very early is one of these foundational ideas in modern business that, you know, great fortunes aren't made by selling one thing. You own the system around the thing. You don't go into the market. You are the market. In the year 1900, a lawyer for the company said, why don't you give it to me?

[Jacob Goldstein]

The purpose of the General Electric Company is to absorb as many companies as possible under the law. And in 1900, the law let you get away with a lot of absorbing.

[Robert Smith]

It was pretty loose. It was pretty loose. By 1960, they had a quarter of a million employees at GE. And then they added one more. The most important person they would ever hire, Jack Welch, our hero and villain of the story.

[Jacob Goldstein]

250,000 and first employee of General Electric.

[Robert Smith]

And I should say here, a lot of the stories in the podcast today come from a great book about GE called power failure. Get it? Power Failure by William D. Cohen. Guess which division Welch was hired into. One word.

[Jacob Goldstein]

Light bulbs. That's two words. I don't know. What?

[Robert Smith]

Plastics.

[Jacob Goldstein]

Oh, plastics. Just like the Graduate.

[Robert Smith]

Just like the Graduate, which was come a decade later.

[Jacob Goldstein]

Yeah.

[Robert Smith]

He was hired into the plastics division in Pittsfield, Massachusetts. Backwater of the company. Why do you think GE owned plastics? How did this fit in the benign cycle of power?

[Jacob Goldstein]

I don't know. What is it?

[Robert Smith]

At the beginning, they needed plastic to cover wires.

[Jacob Goldstein]

It was like an insulator.

[Robert Smith]

Yeah.

[Jacob Goldstein]

We got the conductor. We need the insulator.

[Robert Smith]

Yeah. Why buy it from someone else? We should have a plastics division.

[Jacob Goldstein]

Okay.

[Robert Smith]

Jack Welch was smart from the very beginning. He had a PhD in chemical engineering from state schools. But I'm gonna argue here that the real skill of Jack Welch was that he was a golfer. An extraordinary golfer. This is Corporate America.

[Jacob Goldstein]

1960, Corporate America. Not a trivial skill.

[Robert Smith]

And weirdly, he was trained to do this, to be a CEO. His father, who was the railway conductor. At 10, he teaches Jack Welch how to play golf. Jack Welch becomes a caddy, and his father says, this is the way you're going to escape your working class roots and meet successful businessmen on the golf course.

[Jacob Goldstein]

And he was not wrong. This is a story about class in America.

[Robert Smith]

If you read the story of ge, all these big decisions happen on the golf course. And here's just One example, when Jack Welch was gunning to be CEO, you know, in the early 1980s, he went golfing with one of the biggest shareholders of ge, someone who was on the board of George, who is his golf partner. And then Jack Welch hits a hole in one. No, not true. Not Cypress Point. Absolutely not.

[Jacob Goldstein]

Apocryphal. That sounds so apocryphal.

[Robert Smith]

It is a legend.

[Jacob Goldstein]

The chosen one.

[Robert Smith]

Absolutely. He was the one that should be right. You get a hole in one, you automatically become CEO.

[Jacob Goldstein]

Sure, for good reason. It's like pulling the sword out of the stone.

[Robert Smith]

So Jack gets hired in Plastics in 1960, does not spend a lot of time in the lab. He starts the 29 step climb up the management ladder. And you know, maybe it was his charm, or maybe it's the golf, but it seemed like nothing bad ever stuck to Jack Welch. In the plastics division. He was setting up a new factory at one time. He's in the office across the street from it. They're actually building it, making polyphenol, lean oxide. Somehow a spark ignites it. The factory blows up, blows the roof off the factory. No one was injured or killed. But Jack Welch gets called to corporate headquarters, has to answer for the factory he's just blown up. This is probably the first time. They're like, we have a plastics division and this kid blew it up. He charms him. He charms him. He explains the chemical processes behind it and why it's difficult and all of that. And they let him go.

[Jacob Goldstein]

Let's go shoot a quick nine, boys.

[Robert Smith]

They end up promoting him. And it was around this time where he got the nickname Teflon Jack because nothing sticks to him.

[Jacob Goldstein]

Teflon's a DuPont product, right? You'd think they'd call it polyethylene oxide, Jack.

[Robert Smith]

Nope. Teflon maybe. They wanted to take it over. So he moves from plastics to all chemicals, synthetic diamonds, metallurgy. He becomes a group executive over medical systems appliance components. And then he makes the big leap to consumer products. Okay, that's the glory.

[Jacob Goldstein]

Microwaves and east coast programming.

[Robert Smith]

Absolutely. Twenty years after he joins the company, he's in the running for the CEO. And it's 1980. It's this changing of the guard in corporate America. The eighth CEO in that hallway of pictures was Reginald Jones. He was a quiet, modest man. Lived in a small house, almost a regal, you know, I'm sure, wore a three piece suit. And then here comes Jack, like he's alpha male Bravado. And Forbes called the two chalk and cheese.

[Jacob Goldstein]

Is that a British ism.

[Robert Smith]

I don't know. I don't know. Chalk and cheese. Reginald Jones is.

[Jacob Goldstein]

Reginald is chalk.

[Robert Smith]

Yeah.

[Jacob Goldstein]

And Jack is definitely the cheese.

[Robert Smith]

Yeah. Cause he's, like, big and cheesy and oozes charm. And then Reginald is brittle and white. Something like that.

[Jacob Goldstein]

They're both white.

[Robert Smith]

Yeah. So it is amazing how Jack got the job. Reginald Jones did this whole formal process, took years to promote certain people, put them in the running, and then did these long interviews and everything. And he goes to the division heads and he's like, well, if I should get killed in an airplane crash, who should take over the company right this moment? And every division head said, it should be me. It should be me, Reginald. I'm the man. He's like, okay, who should be your number two if we both die, who should take over the company? And most all of them say, well, Jack Welch.

[Jacob Goldstein]

Oh, that's very good.

[Robert Smith]

Right, right. People loved him. And so it became obvious, you know, he had the magic, he had the hole in one. He was pals with everybody. And he becomes CEO in 1981. He's in his 40s, he's full of energy, and he says, things are going to change around here at ge. I don't want to run some lumbering industrial giant, boring, consistent stock, bureaucratic nightmare. He thinks GE should be confident. GE should throw elbows, push its way through the competition, be in the marketplace. Ge, Jack dreams, should be more like me. Robert Smith. No, Jack Welch.

[Jacob Goldstein]

Jack Welch, definitely a man who referred to himself in the third person.

[Robert Smith]

How he changed the company and brought the cheese.

[Jacob Goldstein]

In a minute.

[Sponsor/Ad Voice]

This message is a paid partnership with Apple Card. There's something interesting about how seamlessly certain tools fit into daily life. Apple Card is one of those things. It can be applied for right in the wallet app on iPhone, and approval can happen in minutes. So it's ready to use immediately with Apple Pay. I'm so glad. The days of finding my wallet, fishing out the credit card, using it, putting it back in my wallet, or oops, maybe I use cash. Where's the atm? Enough. The first time I used Apple Pay on my phone with my Apple Card, I was like, this is the future. There's no going back. With Apple Card, purchases earn daily cash up to 3% with no points to track and no waiting for rewards. It's simply daily cash back that I earn on every purchase. There's even an option to open a high yield savings account through Apple Card. And while I haven't done it yet, if I do, my daily cash can grow automatically over time without any extra effort. Because Apple Card lives in the Wallet app, it's always accessible on iPhone and can be used with Apple Pay at over 85% of merchants in the US and the security of Face ID and Touch ID prevents unauthorized purchases whether using iPhone or Apple Watch. To explore it yourself, you can apply for Apple Card in the Wallet app on your iPhone subject to credit approval. Savings is available to Apple Card owners subject to eligibility Savings in Apple Card by Goldman Sachs Bank USA Salt Lake City Branch Member FDIC terms and [e-mail] this episode is brought to you by Navy Federal Credit Union At Navy Federal Credit Union, May is their favorite month even though they support the military community all year long. Military Appreciation Month is their time to celebrate all those who go above and beyond because they know all members of the military community protect our country at home and abroad, take care of their families and volunteer in their communities. That's why it's been their mission to help for over 90 years as a member owned credit union, they invest in their members with lower rates and fewer fees. Navy Federal Credit Union also supports the military community through their partnership with Higher Heroes usa, empowering transitioning service members, veterans and military spouses to succeed in the civilian workforce. And many of their employees are part of the community they serve, so they provide families with personalized financial guidance and award winning 247 support. To learn more, visit navyfederal.org celebrate and from all of us, Happy Military Appreciation Month. Navy Federal Credit Union Navy Federal is insured by NCUA Running a small business means every hire matters. A bad hire can cost you time, money and momentum. A good hire? They can help grow your business. But finding great talent isn't easy, especially when you don't have the time or resources to sift through piles of resumes to find the right fit. That's why LinkedIn built Hiring Pro, your new hiring partner that screens candidates for you. So instead of sorting through applications, you spend your time talking to candidates who are actually a good fit. You know what this makes me think of my beloved Boston Celtics. Three years ago they chose a new coach, Joe Mazzulla, who was like the third or fourth assistant off the bench. Never had any NBA coaching experience. Everyone was expecting him to fail. And you know what? Turns out he was one of the best coaches in the game and without him, there's no way the team would have made the playoffs this year, let alone be contenders for the finals. Sometimes the right hire makes all the difference. With Hiring Pro, you can hire with confidence, knowing you're getting the best talent for your business. In fact, Those hiring with LinkedIn are 24% less likely to need to reopen a role within 12 months compared to the leading competitor. Join the 2.7 million small businesses using LinkedIn to hire. Get started by posting your job for [e-mail] Pushkin terms and conditions apply.

[Jacob Goldstein]

Ads over or if you joined Pushkin plus and didn't have to listen to an ad, there is no ad. That is over. And we're going back to the show. Jack Welch has taken over General Electric and is about to. What? What's gonna happen?

[Robert Smith]

Well, the first thing you have to do to transform a company is you need a napkin.

[Jacob Goldstein]

If there's one thing we've learned on business history, if you have a big idea in the history of business, you

[Robert Smith]

have to write it on a cocktail napkin. And okay, in Jack's telling, this is how it happened. He's out with his wife at a restaurant in New Canaan, Connecticut, has his cocktail napkin and he draws three circles, barely overlapping circles. And he says GE should just focus on three things. Three big things. My three circles. And they are the core Edison businesses. Large appliances, lighting turbines, high technology. That's the medical equipment, the aerospace and services, engineering, maintenance, financing. And that may sound a little bit boring, but the repair services for GE was a huge moneymaker for them. They would sometimes even sell turbines at a loss, knowing that for the next 30 years they could repair those turbines and sell them parts and make a ton of money.

[Jacob Goldstein]

The turbine is like a giant razor and the services are 30 years of blades.

[Robert Smith]

Exactly right. Only for hundreds of millions of dollars. Yes, yes, yes, yes. Jackson also said this was not on the napkin, that GE should be the number one or number two player in every business they were in. It shouldn't just be, you're in everything. You need to be a winner or a second place person in each industry. And if a division was not number one or number two, GE should sell the companies and get out of the way. And Teflon Jack at this point gets a new nickname. Neutron Jack.

[Jacob Goldstein]

Neutron Jack.

[Robert Smith]

Do you remember the neutron bomb? This was a huge 80s thing.

[Jacob Goldstein]

Yeah. It's the bomb that kills people but leaves buildings standing.

[Robert Smith]

Yes. Sends massive waves of radiation. Everyone dies. But then you can just rebuild society easier because you have the buildings. So the play was Jack was gonna go out and fire all the people but keep the company intact. And the timing was, was good for this sort of move because this is like Ronald Reagan's America. And this is when we start to see shareholder activism right now. In the 30s, 40s and 50s, there was a little bit more of a sense that a company is run for the community and the stakeholders. Right. You had your unions and the town you were in, and, yeah, the people running the company. Right. Everyone benefited, but the actual investors, the shareholders were like, wait, why am I number four in this list of things you care about? You should run this company for the maximum profits possible. And so as Jack is doing this, a lot of companies are thinking of doing this. They're shedding divisions, they're renegotiating labor contracts, They're. They're moving overseas.

[Jacob Goldstein]

Well, and this is also the era when you have the birth of what is now called private equity. Right. At the time, they called them corporate raiders. The time they said they did leverage buyouts, where they would do a version, in a way, of what he's doing, of what Jack Welch is doing, but with debt. Right. They'd borrow a bunch of money, they'd buy some big old line industrial company, and then they'd fire a lot of people and increase the profits. So in a way, Jack is doing that, but without having to buy the company.

[Robert Smith]

Yeah, because he owns every company in America. Right, Right. So he gets rid of small appliances. You know who can make them cheaper? The Japanese.

[Jacob Goldstein]

Ah, the Japanese. It's the 80s.

[Robert Smith]

Very worried about the Japanese. So no more GE clock radios or toasters. Although they would sell the brand, too, so people could put the little round GE logo on it. Air conditioning gone. Mining would have broke Edison's heart. Mining abandoned. At a meeting in Boca raton, Jack fires four division CEOs all at once, all in the same meeting.

[Jacob Goldstein]

Like Game of Thrones meets Succession.

[Robert Smith]

They called it the Boca Massacre. He closed factories, including factories that he had worked at. He apparently devastated Pittsfield, Massachusetts, which is where he got his start. He was pretty brutal. Jack also apparently, and he said this, he did not like fat people, people who were overweight. There's a story he was visiting one of the small appliance factories somewhere, and he's hassling the plant manager about being fat. At one point, I guess when Jack was coming to tour, people were like, hide everyone who's overweight.

[Jacob Goldstein]

Oh, my God.

[Robert Smith]

Like, do not let him see them. Only skinny people on the line. But the plant manager had a big belly, and Jack is giving him a hard time. And so he calls for a GE digital scale to be brought out. They made GE digital scales there, and Jack himself stands on the scale, Gets on, gets off, gets on it's a different number, gets off. He gets on, it's a different number again. And he just goes ballistic. Both at the overweight plant manager and also, the digital scales don't work. And so Jack yells what will become, apparently, one of his favorite catchphrases. Why don't you give this to me, Jacob?

[Jacob Goldstein]

Jack says, what the fuck do I pay you for?

[Robert Smith]

Love it. What the fuck do I pay you for? Charming. In the 1980s, Jack Welch eliminated 100,000 jobs, a fourth of the company. It was brutal. But for all Silly Putty.

[Jacob Goldstein]

Well, you haven't mentioned Silly Putty.

[Robert Smith]

I've been waiting for Silly Putty. I don't know what I mean. At some point, I think they invented it. I'm not even sure if they marketed it. They sold it to someone else.

[Jacob Goldstein]

You're like, I've been waiting for one thing in the last five minutes. What happened to the silly putty?

[Robert Smith]

The 30,000 employees of silly Putty, Inc. Were like, you're gone.

[Jacob Goldstein]

Who's going to put the little eggs into the little machine outside the grocery store?

[Robert Smith]

Of course, the stock price went up after all of this.

[Jacob Goldstein]

Sure.

[Robert Smith]

Yeah. And for all the turmoil, the one place you would not have noticed it is in the financial documents of ge, the annual report. Because the company's earnings looked steady, slow every year, every quarter, GE quietly and was predictably profitable. And this was by design. This was sort of the whole point. We talked about the original reason for a conglomerate, which is, you know, barrier to entry. But over the last half century of ge, they figured out that the real power of a conglomerate was diversification. If one part of the company was not doing well, maybe people aren't buying as many railroad engines. You could perhaps sell more aircraft engines and make up for it.

[Jacob Goldstein]

It's like a mutual fund. It's like an index fund in one company.

[Robert Smith]

And it was classically sort of before it was easy to invest in an index fund of industrial companies. You could just invest in ge, right? They did everything.

[Jacob Goldstein]

It's an index fund in one stock.

[Robert Smith]

And Jack knew this. And so at the end of the year, he would start to pressure people. He'd be like, yeah, we had a bad year in power. I need you in Medical Systems to show me more money. Apparently, from Thanksgiving on, like people, managers of the company worked furiously to try and either generate profits or bring forward profits or move losses.

[Jacob Goldstein]

Like that contract that's probably going to be signed in January. You do whatever you can to get it signed in December.

[Robert Smith]

There are stories of people working on New Year's Eve to try and get the money. And this was the strength of ge and this is what frankly investors wanted to see. Because a lot of the investors are, you know, retirees who want the dividend or, you know, big corporate pension funds. They just want GE to reliably make money. And by the way, this is the whole point for investors of GE. We're not investing in GE for a moonshot where you're going to 10x your investment. You invested in GE, so you get your 5, 10% every single year. So Jack is doing this between the divisions, but as he is liquidating certain divisions, moving things around and it becomes a little bit more difficult. But he has a secret weapon. It is a financial services part of ge. Initially, Jack called it the popcorn stand.

[Jacob Goldstein]

There's always money in the popcorn stand.

[Robert Smith]

There was money in the popcorn stand. It became known to the world as GE Capital. So GE Capital started in the 1930s as a financing arm that gave people loans to buy GE products, like we

[Jacob Goldstein]

talked about in the GM show with General Motors Acceptance Corporation, gmac. Basically you give them the loan so they could buy your product without having to go to the bank.

[Robert Smith]

Yeah, it's great and it helps move product, but that's only the beginning of what you can do with finance. And Jack realized early on that GE could borrow massive amounts of money from Wall street because it was ge AAA rating, as trusted as the US government. Anyone is going to lend money to GE and then it could lend out that money again at higher interest rates, not just to its customers, but to anyone who needed the money.

[Jacob Goldstein]

Sounds like a bank. Sounds like a bank. Borrowing low and lending high, having that net interest margin. That is the fundamental business model of a bank.

[Robert Smith]

And people would flock to GE for these loans. Leverage, buyout. People who wanted to like take over companies could get loans from GE franchises, real estate. It was just an easy way to get money. And you're dealing with ge, so there weren't as many regulations if you had to go to a bank.

[Jacob Goldstein]

It's the kind of regulatory arbitrage. They're doing what a bank does, but they're not regulated as strictly as a bank.

[Robert Smith]

In his book Power Failure, Bill Cohen quotes Jack as saying about GE Capital, why don't you give me your best, Jack Welch?

[Jacob Goldstein]

I thought it was easier than bending metal, fooling with money. You get bright people find an edge. It was easier to make money. It was a home run.

[Robert Smith]

And it became the fastest growing part of GE as it does because it's so easy. You didn't have to have a factory, you didn't have to blow up anything.

[Jacob Goldstein]

So this is striking to me. Right, so what are we like 80s getting into the 90s here? This is when this is happening.

[Robert Smith]

Yeah.

[Jacob Goldstein]

It is really remarkable to think about GE as emblematic of American business, of the American economy. Right. This company that rose with the industrialization and innovation in the 1800s and became this kind of boring corporate behemoth in the mid 20th century. And now what's happening in the American economy. Go, go, go, go, go, go. And a shift from being an industrial economy, being an economy that sells things like jet engines to finance. Right? The great financialization of the late 20th century, it's happening at GE. It's perfect.

[Robert Smith]

And this money making machine allows them to do things they couldn't do before. So of course they built aircraft engines. But they think, well, we have all this money we can borrow at such low rates, why don't we buy the whole plane, put GE engines on them and then lease those planes to the airlines, huh?

[Jacob Goldstein]

Because presumably GE can borrow money more cheaply to buy a plane than an airline.

[Robert Smith]

Do not lend money to an airline.

[Jacob Goldstein]

Right. They are going to go bankrupt. This is the 90s. We talked about this in the Southwest show. Right? They're all going to go bankrupt. Don't lend the money. But ge, they're not going anywhere. So this is another arbitrage, basically.

[Robert Smith]

Yeah. And of course GE could then use depreciation on the planes to offset their tax bill.

[Jacob Goldstein]

Everybody loves depreciation come tax time.

[Robert Smith]

Yeah. So GE Capital also had this added benefit for Jack Welch himself. So he always prided himself on being able to go to analysts and say, oh, here's what, the company is going to make the expectations and then beat those expectations. He just loved to do it. He loved to be like, you know, I'm going to meet 5% earnings growth and then hit 10%.

[Jacob Goldstein]

And this is still in, in financial news, in just bread and butter commodity day to day financial news. Earnings reports of public companies are maybe the classic financial news story. And there is always the question, did they beat, did they beat expectations? And there is this whole backstory of the CEOs, of the companies kind of massaging the expectations, massaging earnings.

[Robert Smith]

And GE was so big and so good at it, there weren't even questions. This just happened every quarter.

[Jacob Goldstein]

But if they're always beating expectations, something weird is going on. The problem then is with the expectations, right? In a well structured world, it would be random whether they beat or miss expectations.

[Robert Smith]

Look, it is a Game. Nobody is looking closely at this point because the economy is growing. GE is growing.

[Jacob Goldstein]

So now we're in the 90s. This is the go go 90s.

[Robert Smith]

Yeah, absolutely. And whenever Jack needed a little extra money, he had GE Capital, because GE Capital, which is growing and growing in the company, owns all these very liquid assets, loans and investments. And so Jack could say to them, I need an extra billion dollars in profit. And they could do it overnight.

[Jacob Goldstein]

There's always money in the popcorn stand.

[Robert Smith]

So now you had the split in the company. Old metal bending, expensive rusting industrial products, and shiny new financial manipulation. And the part of the company that nobody really understood that ends up taking over the company. Financialization, baby. It's worth mentioning at this point a couple of other things that cemented Jack's reputation as the greatest CEO of the century. Trademark. One was he bought the TV network NBC. And buying a TV network never made sense to me.

[Jacob Goldstein]

It doesn't seem like it goes on his three napkin circles of success.

[Robert Smith]

I think he had an arrow to a second napkin that said NBC. But I read about his reasoning, and it does actually make sense. He was worried about competition from the Japanese 1980s.

[Jacob Goldstein]

This is a 1980s movie.

[Robert Smith]

Yeah. Because they were competing in small appliances and TV sets and all of this. And he thinks there is something that foreign companies are not allowed to own by law, and that is TV networks. So he thinks, well, if I have a TV network, that's kind of my moat. That's the one thing the Japanese cannot take over.

[Jacob Goldstein]

Clever. I mean, I guess it is interesting to think about the big Japanese conglomerates, Right. Like Mitsubishi and Mitsui and as a kind of counterpart to ge. Right. Presumably he's thinking of them as his rivals. They're big and innovative at this time,

[Robert Smith]

and so they're trying to think, ge.

[Jacob Goldstein]

What can I do that they can't do?

[Robert Smith]

Yeah. So he has NBC. It allows him to develop what will become his dear pet cnbc, the business channel. He loved to show up on CNBC and just be Jack.

[Jacob Goldstein]

Yeah.

[Robert Smith]

In fact, he just. Even after he left as CEO, he was on it dozens of times. Ladies and gentlemen, Jack. So he had his own business channel. And we were talking about this. There is a strange thing. After Jack Welch left, a show came On NBC called 30 Rock.

[Jacob Goldstein]

A show called 30 Rock. Yes, I know of the show called 30 Rock.

[Robert Smith]

And it was a parody of GE itself. And one of the lead characters played by Alec Baldwin was named Jack Donaghy, who was the head of east coast television and microwave programming.

[Jacob Goldstein]

Beautiful writing.

[Robert Smith]

So the idea is you have this GE executive microwave person who comes in to run a TV network, hilarious comedy ensues. Yeah, and then there were a few facts about the Alec Baldwin character. He grew up outside of Boston in a suburb called Sad Chester Genius. So he had the working class roots and he started in the GE poisons division.

[Jacob Goldstein]

Very funny.

[Robert Smith]

In the very first show, Jack Donaghy talks about how he invented the trivection oven, the third heat. The third heat, which was heat, convection and microwaves. And the punchline, this was an actual product that GE made. The trivection oven was a GE product. They just took it right from the catalog and ripped from the headlines. Oh, okay, enough, enough. 30 rock. The other thing that Jack Welch, the real man, started was something called Six Sigma, which sounds like it's a comedy joke, but is an actual thing.

[Jacob Goldstein]

People were obsessed with Six Sigma in the oughts, right? In the aughts. Was that when everybody was talking about Six Sigma?

[Robert Smith]

Should I show you my Six Sigma tattoo?

[Jacob Goldstein]

You have, like a bell curve.

[Robert Smith]

So Six Sigma is a statistical measure of how many defects are in a product. You take the normal distribution. One Sigma is one standard deviation all the way out to six standard deviations. Six Sigma, it boils down to, if you make a million products, you can have defects in three parts. Tiny, tiny fraction. It's just manufacturing excellence. If this show were going by Six Sigma principles, God forbid, the length of every show would vary by 1/100th of a second, slightly faster, and then massage the earnings. So Six Sigma, we beat expectations. Six Sigma did help the company. They did improve their operating margins, but it was more of a brand for Jack. Everyone had to go through Six Sigma training. He took the best people from every division to go to Six Sigma school, you know, up in Crotonville. And, you know, a lot of people at the time referred to it as management mumbo jumbo.

[Jacob Goldstein]

People really say mumbo jumbo? I feel like no one actually says that.

[Robert Smith]

No one ever talked about Seven Sigma. Impossible. But look, it worked. It saved some money for the company. They increased operating margins, whatever, whatever, whatever. But it seemed to me it was more like a PR move for Jack. So when people said to him, wow, how do you keep beating expectations with your earnings? He could be like, sir, six.

[Jacob Goldstein]

Have you counted my sigmas, young man?

[Robert Smith]

So many sigmas. Try three vections, three heats and six sigma, it's 18.

[Jacob Goldstein]

The product of my heats and my sigmas is 18, sir.

[Robert Smith]

It is easy to mock and to nitpick at this point, but in the mid-1990s, GE becomes the most valuable company in the world. In the year 2000, it reached its peak just as Jack was about to turn 65 and retire. It was a perfect CEO run. He increased GE's earnings Eightfold over the 20 years.

[Jacob Goldstein]

Wow.

[Robert Smith]

Stock increased by a factor of 40, 40x for an industrial company. Right, right, right. And then Welch picks his own successor, Jeffrey Immelt, the best salesman in the company. And he hands the best salesman in the company the best company in the world. What could go wrong? Whatever evil was hiding in ge, and there was a lot of it was about to be the problem for the next guy in a minute gonna have

[Jacob Goldstein]

an ad break unless you've signed up for Pushkin plus. And if you don't want to hear the ads, go right now to Pushkin FM plus.

[Sponsor/Ad Voice]

This episode is brought to you by Navy Federal Credit Union At Navy Federal Credit Union, May is their favorite month. Even though they support the military community all year long. Military Appreciation Month is their time to celebrate all those who go above and beyond. Because they know all members of the military community protect our country at home and abroad, take care of their families and volunteer in their communities. That's why it's been their mission to help for over 90 years. As a member owned credit union, they invest in their members with lower rates and fewer fees. Navy Federal Credit Union also supports the military community through their partnership with Higher Heroes usa, empowering transitioning service members, veterans and military spouses to succeed in the civilian workforce. And many of their employees are part of the community they serve, so they provide families with personalized financial guidance and award winning 24. 7 support. To learn more, visit navyfederal.org celebrate and from all of us, Happy Military Appreciation Month. Navy Federal Credit Union Navy Federal is insured by ncua. Running a small business means every hire matters. A bad hire can cost you time, money and momentum. A good hire? They can help grow your business. But finding great talent isn't easy, especially when you don't have the time or resources to sift through piles of resumes to find the right fit. That's why LinkedIn built Hiring Pro, your new hiring partner that screens candidates for you. So instead of sorting through applications, you spend your time talking to candidates who are actually a good fit. You know what this makes me think of my beloved Boston Celtics. Three years ago they chose a new coach, Joe Mazzulla, who was like the third or fourth assistant off the bench. Never had any NBA coaching experience. Everyone was expecting him to fail. And you know what turns out he was one of the best coaches in the game, and without him there's no way the team would have made the playoffs this year, let alone be contenders for the finals. Sometimes the right hire makes all the difference. With hiring pro, you can hire with confidence, knowing you're getting the best talent for your business. In fact, Those hiring with LinkedIn are 24% less likely to need to reopen a role within 12 months compared to the leading competitor. Join the 2.7 million small businesses using LinkedIn to hire. Get started by posting your job for [e-mail] Pushkin terms and conditions apply.

[Public Investing Sponsor Voice]

Support for the show comes from Public, the investing platform for those who take it seriously. On Public, you can build a multi asset portfolio of stocks, bonds, options, crypto and now generated assets which allow you to turn any idea into an investable index with AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500. Then you can invest in a few clicks. Generated assets are like ETFs with infinite possibilities, completely customizable and based on your thesis, not someone else's. Go to public.com podcast and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com podcast paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory Services by Public Advisors llc. SEC Registered Advisor Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice. Complete disclosures available at public.com disclosures.

[Robert Smith]

We're back from the break, but you know who's not back? Jack Welch. He's off enjoying his retirement. And finally Jeffrey Immelt becomes CEO. Jack leaves on a Friday. Jeff starts on the Monday. There's a pep rally. An actual engineered pep rally for Jeff Immelt. Yay. You're our next Jack. And it's broadcast all the different offices. Has a great time. Jeff Emmelt had been at GE for decades. Like Jack, he worked his way up through the various divisions. But unlike Jack, he is not an engineer, a nuts and bolts guy. Jeff is an Ivy Leaguer. He can golf, but mostly he was the captain of the Dartmouth football team, Harvard mba. He's a glad hander, back slapper. Everyone likes Jeff Immelt. Best salesman in the Company. Later, Jeff would say that he had only one good day in his job. That first day. Monday, September 10th, 2001.

[Sponsor/Ad Voice]

Oof.

[Robert Smith]

I know. The next morning, two planes hit the World Trade Center. And the financial repercussions, you may remember, were massive. They were immediate. So ge, as we've talked about, was in the aircraft business. GE was also in the insurance business, had insurance policies that were involved in that day. And as Jeff later put it, why don't you read this quote?

[Jacob Goldstein]

On my second day, a plane I lease running on engines I built, crashed into a building I insure, and it was covered by a network I own.

[Robert Smith]

Diversification had gotten GE through basically everything that happened in the 20th century. But in this case, September 11th was so big, it hit at all parts of the company at once. And the biggest problem for GE wasn't necessarily that they took a hit. A lot of companies did. But it was that GE investors were surprised by the ways in which September 11th hit the company. Jeff Immelt remembers getting a phone call from one of his largest investors who said, we're in the reinsurance business. I had no idea we were in the reinsurance business.

[Jacob Goldstein]

I feel like that's on the investor. Like, it's not like GE was hiding that.

[Robert Smith]

No, I'm sure it was in the annual report on page 87 or something like that. All of a sudden, though, people started to ask questions, what else is in this company? And diversity becomes a weakness at this point, and investors stop saying, wow, GE does everything. And they start saying, wait, what exactly does GE do? And how are we going to get out of this when the markets open? It was a few days later, yeah. GE stock was hit, especially 25% down, both for the business impact and also because people just needed liquidity. They were selling the most basic stuff they had, which was ge. And this might have been the chance for Jeff Imalt. It's his first week to really reset the company, and everyone was expecting this. They were expecting him to say, well, we're going to have to make some tough decisions. Maybe not give dividends. Maybe we won't meet earnings. Maybe we'll reform the way the company does business. Instead, Jeff Immelt decides he wants to be like his predecessor, like Jack Welch. He wants to show profits. And even though Jet Engines and NBC had lost money that year, in 2001, Immelt promised a 10% boost in earnings. Jack level. And he met a school like, it's a miracle. And GE met their expectations by leaning even heavier on GE Capital and its Financial deals. But something had changed about people's perception of GE at this point. And maybe it's that Jack Welch has left, maybe it's that we're no longer in the go go 90s, or maybe it's the mood of the country. This is the age where we're starting to get into Enron and Tyco accounting scandals. And people start to ask some hard questions like how exact are you exceeding expectations? Every quarter, every year at this point, GE is getting more than 40% of its profits from GE Capital, from its financial arm. 40% of its profits. It was a bank we've talked about, but more than that, it was around the seventh largest bank in the U.S. if you look at their assets, but not regulated like a bank. It's a bank dressed up in a factory costume. And it's borrowing money at rates usually given to large, steady industrial companies, and then funnels that money to the Wall street guys. And then someone says something, they hold an investor meeting and they notice that a really big company is not there. Pimco, which was the largest bond company

[Jacob Goldstein]

at the time, they're like bond investors. It's basically a bond investment company. They buy bonds.

[Robert Smith]

Yeah. And the guy who runs it is Gross, known as the bond king. And he announces that not only is he not going to show up to this meeting, but he is going to unload a billion dollars worth of GE bonds, money that he had lent to ge. He's like, I don't want to be in the GE business anymore. And if you know Bill Gross, you'll know that he did not do this quietly, in a memo, in a polite way. Bill Gross goes to war with the company, publishes the scathing article. He points out that not only is GE a bank company borrowing a ton of money, but it's running on commercial paper.

[Jacob Goldstein]

Huh.

[Robert Smith]

So commercial paper is a certain kind of loan. It's basically a short term loan in the market, sometimes for, for just months,

[Jacob Goldstein]

never longer than months. Right. The longest commercial paper loan is something like nine months or something.

[Robert Smith]

So usually companies use this for short term needs to meet payroll or they're trying to build something new. Right. But Bill Gross pointed out that GE had borrowed $127 billion worth of short term loans.

[Jacob Goldstein]

Huh.

[Robert Smith]

I'm gonna say it again. $127 billion worth of short term loans. That of course, like their plan was they would roll those loans over, they would get money, they would pay them off, get new loans to pay those loans. Like that's the plan. But what if Bill Gross says The market says, no, no, thank you.

[Jacob Goldstein]

Well, I mean, let's talk about that for, for a minute more. Right. Because it seems central to the, to. To risk, I think, in a way that's underappreciated. So they're doing this other bank like thing here. They're not just borrowing at a low interest rate and lending at a higher interest rate. If you borrow money for five years and lend it out for five years and you have this interest margin, great. That is, that's relatively safe. If the people you're lending to don't go pay you back, that's maybe trouble. But this borrowing short term and lending long term, that is the fundamental reason why banks are so risky. We put our money in the checking account in a basic model of a bank. We can take it out tomorrow. The bank turns around and lends it to people for 30 years to buy a house. And if everybody all of a sudden decides to take their money out of the bank, the bank is not going to have their money, even if the bank is healthy. And this is why banks are so highly regulated, because they're a fundamentally dangerous business. Not because they're borrowing and lending, but because of this. They call it maturity transformation. This maturity mismatch of borrowing short and lending long. And I suppose this is what we're walking up to. This ends up being the core problem in the 2008 financial crisis. I mean, we hear about housing and the housing bubble. That's like the surface of it, but the underneath part of it is these companies that are not banks doing this maturity transformation that is wildly dangerous and that is going to blow up the economy.

[Robert Smith]

It becomes, I don't want to say a full bank run or even a slow motion bank run, but definitely Bill Gross is first in line to take his money out of the company. And he starts to question the very honesty of Georgia, asking, well, how do they get these consistent earnings? He called it a conglomerate financed by a money machine, which was accurate. And inside, GE executives start turning on each other. There's yelling in meetings. People start to leak bad news about the new CEO, Jeff Immelt, that he doesn't listen. He takes nobody's advice. He's acting like the captain of the football team, not a friendly golf bunny. They say he's afraid of Wall street, that he basically will write the press release first and then backwards engineer how he gets things into the press release. Jeff responds by changing the company's marketing. I know, I know, I know. He decides it is a good time to change the slogan. You Remember the slogan of ge?

[Jacob Goldstein]

We bring good things to life.

[Robert Smith]

We bring good things to life. It is burned in my brain because it was their slogan for decades and decades. And they go to their advertising firm, say, we want to change the slogan. And you know, advertising firms love this moment to make money. But even the advertising firm is like, dude, this is one of the most famous slogans in the world. It's up there with Coke, the real thing. Gee, we bring good things to life. You don't want to do this. And Jeff's like, we want to do it. And they come up with their new slogan, imagination at work. Which is fine, whatever, but people hate it. Especially in an era when people are starting to question your accounting. You don't want to lean on the imagination part.

[Jacob Goldstein]

Why are you imagining those earnings? Imelt

[Robert Smith]

okay. We might as well get to the lowest point. We could go on all day. Housing bubble starts to burst in 2006. GE Capital is, of course, up to its ears in real estate of various sorts. In 2008, Jeff Immelt tells Investor Call, it's gonna be okay. 10% growth is in the bag. In the bag, in the bag. Just like always. 10%. Just like Jack used to do. But remember, GE Capital can't come to the rescue this time. They're having trouble unloading the investments that they have. They are in trouble. They're bleeding money. And less than a month after he says it was in the bag, GE announces that they will miss their numbers. No, inconceivable. GE does not miss its numbers. The stock plunges 13%. And this is the saddest part of this very sad story. Jacob.

[Jacob Goldstein]

It's not sadder than 10,000 people getting fired.

[Robert Smith]

This one made me sad.

[Jacob Goldstein]

Fair enough.

[Robert Smith]

The great Jack Welch goes on CNBC that day. Remember the network that's owned by ge? Jack Welch comes out of retirement, sits down in the chair, turns to the anchor, and he rips into his successor, into Jeff Immelt. He basically is addressing Jeff through the camera, and he says, here's the screw up. Meaner.

[Jacob Goldstein]

Here's the screw up. You made a promise that you'd deliver this, and you missed. Three weeks later, Jeff has a credibility issue. He's getting his ass kicked. I'd get a gun out and shoot him if he doesn't make what he promised. Now just deliver the earnings.

[Robert Smith]

What a jerk.

[Jacob Goldstein]

What a jerk. Also, he picked Immelt. Like a key central job of a CEO is helping to choose the successor.

[Robert Smith]

And Jack starts saying, it was my worst mistake I made. And I picked a loser. Jeff calls his former boss, calls Jack and says, you are dead to me.

[Jacob Goldstein]

Sure.

[Robert Smith]

And then, can you take another blow? It's like a horror movie in here.

[Jacob Goldstein]

Listen to me. I don't feel sorry for Jeff Immolt. I'll be honest with you.

[Robert Smith]

All right. The commercial paper market starts to freeze up. All those billions in loans that GE took out, they start to hear that, like they can't really roll them over. You know, people give them money for one night, one day.

[Sponsor/Ad Voice]

Yeah.

[Robert Smith]

But no one knows if GE's going to be around in 90 days. And so this is the financial crisis.

[Jacob Goldstein]

This is the same thing that's happening to Bear Stearns, it's happening to Lehman Brothers.

[Robert Smith]

It got bad. At one point, Emil tells the Treasury Secretary in secret that they might need a bankruptcy plan again.

[Jacob Goldstein]

If you are a big industrial company and you go bankrupt, that is extremely bad. If you are a bank and you go bankrupt, it is much worse because you are tied through these credit and debt relationships to everybody in the economy.

[Robert Smith]

Somebody bought that $127 billion in commercial paper.

[Jacob Goldstein]

Yes.

[Robert Smith]

And the market doesn't know who owns GE Paper. If GE were to declare bankruptcy, it would be absolute panic. It would be the worst. The US government knows this about banks in general. And so they're in the process of coming up with these facilities to help bail out the banks. But remember, in a cruel twist, GE never wanted to be called a bank. There's not bank in the name. This was their trick.

[Jacob Goldstein]

Well, lots of companies were doing this around this time. There were lots of non banks that had become actually another PIMCO guy called them shadow banks.

[Robert Smith]

Yeah, he.

[Jacob Goldstein]

He described this phenomenon that had arisen, which was all these companies that were not banks, that were not regulated like banks, had become banks. And now there was a shadow run on the shadow banks.

[Robert Smith]

Yeah. And GE and these other companies were like, well, remember when we said we weren't a bank? And it occurred to them that every other bank in the country now had a federal guarantee essentially on their loans, could borrow all this money and GE did not. No one would ever lend money to GE when you could lend it to a bank backed by the US government. So they groveled. They groveled. They pulled politicians into this. Eventually, eventually GE gets covered by a federal loan guarantee for some of these things, and GE ends up being one of the largest users of this facility, just sucking in money, trying to keep things going. Jeff Immelt, to his credit, tries a bunch of things to revive the company. He promises that he's going to reduce the size of GE capital. He tries to make some industrial acquisitions to try and get that metal bending mojo back to return the company to former glory, but nothing seems to work. At one point, Jeff Immel clearly is tired of trying to be Jack, and he blows his top. And he tells a bunch of analysts, you want to give this a read?

[Jacob Goldstein]

In the 1990s, anyone could have run GE. His dog could have run GE. A German shepherd could have run GE. It wasn't Jack Welt. He's saying it was the 90s doing the lips.

[Robert Smith]

And I mean, he had a great point. The great debate in business circles is whether Immelt ever stood a chance. If he were a better CEO, better golfer, could he have rescued the company? You know, could he have made some changes here and there? I firmly believe that Jack Welch planted a financial time bomb. He used it to enhance his glory. CEO of the century, and then he left it to the next guy to fix. I blame Jack Welch.

[Jacob Goldstein]

You know, it's interesting. We were talking about this, this show, this story yesterday, and our editor, Ryan Dilley, made this point that I thought was really interesting.

[Robert Smith]

He.

[Jacob Goldstein]

He called back to the show we did about General Motors, about gm, and in that show, I talked about Alfred sloan coming along, 20s, 30s, and kind of creating the model of the manager, the manager for the 20th century. Before that, it had been a lot of entrepreneurial cowboys starting up companies in this era of industrialization. And then things kind of settled down and Sloan was more boring and into organization, and that became the model for the rest of the 20th century. And you can see Jack Welch has the bookend to that. He is sort of the last of the managers who come in to run a company that was started long before,

[Robert Smith]

who could do it with inspiration and vision and everyone pulling together.

[Jacob Goldstein]

Yeah. Because after that, once you get into the 21st century, we are now back into the cowboy entrepreneur era. You know, the biggest companies now, unlike GE at the turn of the century, are for the most part, companies that were started 20 years ago, 40 years ago, 50 years ago, almost entirely by people who are still alive, in many cases by people who are still running them. So in that way, Welch is the end of an era.

[Robert Smith]

Yeah. And you don't see many of these new entrepreneurs who are leading companies playing golf. There's no time. They work around the clock.

[Jacob Goldstein]

And then they got to sleep, they got to do their workouts.

[Robert Smith]

So the official end of the story, Jeff Immelt, pushed out of GE by the board in 2017. And there was One final indignity that Jeff Immelt had to face after he left, the Wall Street Journal published a story about Jeff and his private planes. Planes, plural. So of course, as CEO of ge, he flew all around the world, constantly on his private plane, his GE jet, specially painted as a GE plane. But what no one knew and the Journal revealed is that there was a second plane, an empty plane owned by GE that followed that first plane. Anywhere Jeff Immelt went, landed right next to it, and was there just in case something went wrong with the first plane. There was a backup plane flying around the world.

[Jacob Goldstein]

I remember when that story came out and it really landed, if you will. I mean, it was emblematic of the, like, grotesque corporate excess. But it's so visual.

[Robert Smith]

Yes.

[Jacob Goldstein]

I think it's such a good story because you can see it. And the notion of, sure, you've gotten used to the CEO flying on a private plane. Okay, we've accepted that. But a second empty plane is a slap in the face.

[Robert Smith]

Too much of it. As the nation's recovering from the Great Recession, it was terrible. The new CEO of ge, John Flannery, he announced that from there on out, they would fly commercial. I mean, first class.

[Jacob Goldstein]

Sure.

[Robert Smith]

Yeah. I mean, come on, maybe buy a second seat. Sure. Just a little room. He was actually on a commercial flight to Salt Lake City when John Flannery typed into his laptop Operation Eisenhower. It was a code name because there was someone sitting next to him he didn't want them to see. And Operation Eisenhower was the outlines of a plan to break up George to get rid of GE Capital and then form three separate companies that would take the parts of GE. And his plan finally happened in 2024. GE is now GE Aerospace company number one, GE Healthcare company number two, and company number three, GE Vernova.

[Jacob Goldstein]

The other two were very clear that you're going to drop Vernova on me. What is Vernova?

[Robert Smith]

Nobody knows. Yeah, it's purely, you know, you know,

[Jacob Goldstein]

I mean, what is it?

[Robert Smith]

It's the energy stuff.

[Jacob Goldstein]

Oh, it's the Edison. It goes back to Edison.

[Robert Smith]

And G.E. vernova actually is doing remarkably well. It's had this huge stock increase. Everyone's talking about it. It's the next ge, but smaller for now.

[Jacob Goldstein]

Today's show was produced by Gabriel Hunter Chang and engineered by Sarah Bruguer. Our video editor is Matt Nielsen.

[Robert Smith]

Yes, we have videos on YouTube.

[Jacob Goldstein]

Our showrunner and editor is Ryan Dilley. I'm Jacob Goldstein.

[Robert Smith]

I'm Robert Smith. Thanks for listening.

[Sponsor/Ad Voice]

This episode is brought to you by Navy Federal Credit Union. May is their favorite because Military Appreciation Month is their time to celebrate those who go above and beyond. They know the military community protects our country, takes care of their families and volunteers in their communities. That's why they've helped the military community for over 90 years. Learn more at navyfederal.org Celebrate and Happy Military Appreciation Month. Navy Federal Credit Union Navy Federal is insured by NCUA.

[Robert Smith]

I'm U.S. transportation Secretary Sean Duffy. The sound of a Seatbelt it's one of the most important sounds in our car.

[Sponsor/Ad Voice]

It means everyone is ready and everyone is safe.

[Jacob Goldstein]

The more our kids see us put

[Robert Smith]

on our seatbelts, the more natural it is for them to put theirs on, too.

[Sponsor/Ad Voice]

Make it a priority.

[Jacob Goldstein]

Buckle up every time. Hear the sound. Make it a habit.

[Robert Smith]

Paid for by NHTSA Ever wonder how to make hosting look effortless? Here's a secret when prepping for cooking and baking, get ahead of the mess with new Reynolds Kitchens countertop prep paper. Just lightly wet the counter so the paper grips. Lay it down and drips and spills stay on the paper, not on your counter. Cleanup is as simple as lifting it away to reveal clean counters. Effortless it is thanks to Reynolds Kitchen's countertop prep paper. Wet it it, Set it, Prep it. Done. Available in the Reynolds Wrap aisle at Walmart, Target, Amazon, and Costco.