Is the House of Cards that Jack Built Crumbling?

05/25/2011 01:05 pm ET

It's no surprise that GE's stock slumped to $6.66 yesterday, causing the Post and the Times to lump them in with GM.

That's what happens when companies put financial engineering before real engineering.

Who could have predicted this, you might ask? Well actually, a group called United for a Fair Economy predicted it when they gave GE the "lifetime achievement award" among the Titans of the Enron Economy back in 2002.

And anyone who bothered to read Thomas F. O'Boyle's book, At Any Cost: Jack Welch, General Electric and the Pursuit of Profit would have understood that it would only be a matter of time before the House that Jack Built crumbled like a house of cards.

In the 1980s, Welch said American factories must "automate, emigrate, or evaporate." But he might as well have said "automate, emigrate, then evaporate."

It's been a long time since the company founded by the hero of American ingenuity -- Thomas Edison -- became mostly a bank, but that transformation, which happened well over a decade ago, may in the long run have been fatal. While CEO Jeffrey Immelt has led the company into new areas of innovation (including much-needed windmills), they are still sideline businesses that have effectively been subordinated to GE Capital. And so last year, when it started getting difficult for GE (a AAA rated firm) to access credit markets for its short-term debt, it began a downward spiral that now threatens to tank the entire company. As Bloomberg reports, GE invested heavily in a "lot of mediocre real estate," and while company officials claim they "exited early," GE may still have "too much exposure" to real estate loans. (One analyst is predicting up to $11 billion in cumulative losses/write-downs.) No wonder investors are nervous.

Perhaps that is why the company is turning up the conglomerate's propaganda machinery. And yet, even after Jon Stewart did a brilliant slam on CNBC (one of GE's propaganda divisions) -- NBC continued to public the kind of bilge that only the desperate would publish. Yesterday's headline: "Why a Lousy Jobs Report Could Actually Help Stocks"

Now that's desperation.