Props to ProPublica and the Washington Post for a joint story on how General Electric has benefited from $74 billion in bailouts in the form of guarantees on its debt—without being subject to the normal level of regulation for banks.

It shouldn’t have been in the program, the Temporary Liquidity Guarantee Program, but regulators let it in after a lobbying effort that included one of the most powerful banking attorneys in the world, Rodgin Cohen of white-shoe firm Sullivan & Cromwell.

And by doing this:

GE’s finance arm is not classified as a bank. Rather, it worked its way into the rescue program by owning two relatively small Utah banking institutions, illustrating how the loopholes in the U.S. regulatory system are manifest in the government’s historic intervention in the financial crisis.

Yet even though GE Capital accounts for half of GE’s total earnings, it escaped Fed regulation and had to suffer under the not-exactly-firm hand of the Office of Thrift Supervision—a regulator so poor it’s going to be phased out.

But the Post reports that this could change:

The Obama administration now wants to close such loopholes as it works to overhaul the financial system. The plan would reaffirm and strengthen the wall between banking and commerce, forcing companies like GE to essentially choose one or the other.

“We’d like to regulate companies according to what they do, rather than what they call themselves or how they charter themselves,” said Andrew Williams, a Treasury spokesman.

To be clear, it wasn’t necessarily a bad thing that regulators exempted GE Capital. Its failure would have had nasty consequences for markets around the world at a time when they couldn’t take it. But why GE and not, say, CIT?

One of GE’s competitors in business lending markets, CIT Group, a smaller company, has had a harder time raising cash. It has been unable to persuade the FDIC to allow it into the debt-guarantee program, at least in part because of its lower credit ratings. A recent Standard & Poor’s analysis cited CIT’s “inability to access TLGP” as a factor in the company’s declining financial condition.

Where would GE be without the government guarantees? It’s obvious that it, too, is Too Big to Fail.

This next graph raises a question for me:

Unlike the banking giants, GE Capital is part of an industrial company. That allows GE to offer attractive financing to those who buy its products.

Is it in the best interests of a competitive marketplace for one company to make a product and finance it? Especially if that company is one as powerful as GE Capital. It seems like that would help cement its position as a market leader and help squelch scrappy upstarts. It would be easier to put those upstarts out of business if you can offer 0 percent financing deals.

And it certainly hasn’t helped the automakers, who delayed their necessary restructurings by subsidizing the financing of their cars. And it seems like such conglomerates raise regulatory problems beyond what the Post and ProPublica raise here. If GE’s industrial businesses got in trouble, wouldn’t it be tempted to shuffle money from GE Capital to its other units—hurting the bank’s safety?

This is an area that would seem to be flush with possible stories. I love stories that suggest other stories. You know you’re on to something.

Like this interesting piece of info the Post and ProPublica drop at the bottom.

Much of the $340 billion in debt will come due in 2012, the year the FDIC guarantees expire. At that point, known in banking circles as the “cliff,” the agency will have to make good if companies such as GE are unable to honor their obligations. FDIC officials say they are comfortable that the agency has collected more than enough money to cover potential losses.


Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.