Oh no he didn’t

In contemplating the decline of General Electric stock, Henry Blodget bludgeoned former GE CEO Jack Welch today. According to Blodget, GE Capital giveth and GE Capital taketh away, and GE Capital, of course, was Welch’s baby. During the boom, GE Capital’s leverage-fed returns was a bright star in GE’s firmament. Today, that leverage is coming back to haunt the company, dragging down the otherwise respectable earnings of the company’s industrial units.

Even Blodget, however, is led to qualify his point, noting that current CEO Jeff Immelt has had seven years to put GE’s house in order. Rather than roll back the financial activities of the company, he embraced them. Jack Welch might have laid the track, but Immelt is the guy driving the train.

General Electric’s difficulties do illustrate, though, the fickle nature of the financial industry. It’s an awfully difficult horse to hitch your buggy to, capable of creating and destroying wealth at severe and rapid rates. In this, the American economy overall began to look a lot like General Electric in the new century – financial-heavy, with boom-time financial profits masking an underlying weakness or contraction in other sectors.

On BusinessWeek’s Economics Unbound blog, Michael Mandel demonstrates this point, plotting out overall real corporate profits since 1987 against those in the financial sector alone. The last ten years charted – 1997 to 2007 – is a dismal picture showing that corporate profits are more or less where they were 10 years ago. Small surprise, then, that stock market valuations are revisiting territory last seen in the 1990s.