[hogFeast]

2007 called. They want their insight back. GE sold off GE Capital over a decade now. None of the "financial engineering" relates to leases (although the dodgy accounting often does...but that is something else).

Financial engineering is usually concerned with building and valuing pointless derivatives.

In most cases, the derivative will pay equity-like returns with low volatility or income (stupid financial advisers go nuts for both). Invariably, these products self-destruct in a crisis (when the lads are off in their Ferraris) due to some bizarre optionality that is built in.

The other side is valuation which is about employing a combination of inapplicable maths with a wilful ignorance of common sense (usually to satisfy regulators who will approve your bullshit and then come to work with you next year to make up more nonsense).

The first task is dressing the pig up. The second task is inventing a mathematical formula that explains why the pig is actually a human. French banks are pretty much ground zero for this (I have no idea why).

Also, nothing is particularly wrong with American business. Most firms are not involved in anything like this, and when they do get involved it is rarely a case of them deciding to do so. They do so because they feel they have no other choice (i.e. engineering firms provide finance so that people buy their stuff, GE Capital existed because of the torrent of cheap money that flooded the market in the 2000s). The general move to greater financial efficiency, however, has been a massive boon (look at places that haven't done that...Japan is a great example, you want to work 12 hours for a day for like $35k/year?).

[msbarnett]

> GE sold off GE Capital over a decade now.

They did? TFA (and Markopolus’ report) doesn’t seem to reflect that:

> In January 2018, GE reported a $6.2 billion charge based on liabilities in its long-term care business, which is run by the company’s financial services unit, GE Capital. To make up for the costs, GE Capital said it needed to set aside $15 billion to hold against potential losses, and stopped paying a dividend to its parent company for the “foreseeable future.”

A cursory glance at Wikipedia suggests some subdivisions were sold off between 2015 and 2017, which is...not the whole thing and definitely not “over a decade ago”

[rockinghigh]

GE did not sell all of GE Capital; they are still in business and part of GE. From GE's answer to Markopolos:

> The Company ended the second quarter with $16.9B of Industrial Cash excluding BHGE, $12.5B of liquidity at GE Capital and access to $35B of credit facilities.

https://www.genewsroom.com/press-releases/ge-addresses-claim...

[nosianu]

> nothing is particularly wrong with American business

I am in no position to argue and it is not my intention to do so. Instead, I have a question based on things I (causally) read.

For example, this piece from a conservative source: https://www.theamericanconservative.com/articles/americas-mo...

Sample quote serving as TL;DR:

> In fact, the destruction of America’s once vibrant military and commercial industrial capacity in many sectors has become the single biggest unacknowledged threat to our national security. Because of public policies focused on finance instead of production, the United States increasingly cannot produce or maintain vital systems upon which our economy, our military, and our allies rely.

It is not really only about the military, but about a larger context. They seem to be quite concerned about the industrial base of the US, including in high-tech industries. In support of their point, when I look up chip manufacturing capacity worldwide - https://anysilicon.com/semiconductor-wafer-capacity-per-regi... - Asia is 75% and the US ~10%.

What is your opinion about the point made by the article? In the larger context, not necessarily the military focus.

[coliveira]

The US has since the 80s adopted an economic strategy that favors financial investments instead of industrial production - for example, very low taxes are charged for financial investments. The advantage of this is that financial investments give higher returns. The disadvantage is that such investments are detrimental to industrial production, as capital will try to relocate industry to places where production is cheaper and concentrate only on the financial engineering of the business. This is effectively what happened, since there is no advantage for American capital to start producing things when investors can just put their money in other places for higher returns. This affects even companies such as Apple, which is not at all concerned with finance. As a result of such policies there will be with very little industry left in the US (other than the essencial that cannot be relocated) and production will continue going to other places -- and those places are in Asia.

[cc439]

I'm glad to see that article is slowly making the rounds through circles such as this. The implications of the facts presented by that author should terrify anyone concerned about the future of the US and yet the clearly detrimental practices of a company like TransDigm are virtually unreported despite investigations conducted against them at the highest level. The picture painted by Stroller and Kunce is very bleak, so bleak in fact, that I'd say part of the reason issues like this go unreported is because there would be mass panic should the public at-large ever become aware of just how broken everything is.

[yold__]

> GE sold off GE Capital over a decade now.

No, they spun off some of their LTC and Life Insurance business into Genworth, which, incidentally is suffering from some pretty severe LTC woes themselves.

LTC is literally the textbook case study in shitty actuarial assumptions. A combination of low interest rates, huge medical expense inflation, adverse experience (i.e. people staying on claim for 2x as long), and low lapse rates have bankrupted at least one insurer in the last two years (Coloniel Penn). Genworth may be next.

GE's auditor KPMG has had some "strikes" against them in recent years that are bad enough to draw attention from the PCAOB.