[programbreeding]

>Much of those gains came from GE Capital

>GE’s profit has plunged in recent years, dragged down by hidden costs in the company’s Capital unit

>he gave himself an A for his execution of its operations, and an F for his choice of successor

Am I reading it right that the reason GE Capital was so successful during his time was because there were hidden costs, making it appear more profitable than it was, that didn't come out until later? Or did this hidden costs actually not exist until choices that were made after he left?

[Digory]

Correct. GE recognized fees up front, and pushed costs to the future.

The Wall Street Journal published a massive article on GE's problems back in 2018.[0] Well worth your time, if you want to understand how big companies game their earnings.

https://www.wsj.com/articles/ge-powered-the-american-century...

[AtlasBarfed]

Voodoo accounting 101, followed by every strike-price-chasing CEO to the detriment of everyone.

[markus_zhang]

For anyone who can't break WSJ paywall

https://outline.com/M22bbL

[salawat]

Yes. You are reading it right.

The best way to describe the management style of the 80's onward would be a financially engineered pump-and-dump characterized by putting workers through the meat grinder, and shirking any social responsibility that could be conceivably avoided by any means possible. Those are the basis of the hidden costs. Each person that got sacked took more institutional knowledge with them, and each responsibility shirked was just a matter of time before it came back around to bite the company on the balance sheets.

Once 2008 hit, seeing as most of the value the Capital part of the company had was found to be a house of cards, nearly taking the company out with it.

When the price of growth is to be an absolute bastard; one should wonder whether the price is too high. Note also that Reich's management style basically required the Reagan era deregulation to thrive. He was far more reserved when Unions actually had teeth.

Really a shining example of what not to emulate in my book. If you have to sacrifice long-term stability for short-term growth, you're misreading the landscape.

[sgt101]

>If you have to sacrifice long-term stability for short-term growth, you're misreading the landscape

Or eyeing your bonus pot and the golf course / opera house.

Shareholders are holding for 3-6mths, executive incentive is aligned to those time spans.

[unlinked_dll]

Most shareholders are interested in holding for more than a year because they get 7-10% more money for free due to tax incentives.

But regardless there are many kinds of investors. The bottom feeders interested in 3-6month time spans are just one of them.

[sgt101]

This is so for retail investors. I do not think it is so for funds.

[pdonis]

> Am I reading it right

Yes.

[ipython]

Previously discussed here on HN: https://news.ycombinator.com/item?id=20753510