In the midst of the financial crisis, what was a non-financial company doing borrowing money from the Fed?

As most who work in banking and finance know, GE was and continues to be a major player in the finance world.  GE Capital, born out of GE’s early days of financing the purchase of kitchen appliances and later industrial equipment, came to contribute the lions share of yearly earnings for their parent GE.  Investment banks bent over backwards to get GE Capital as a customer to gain access to the massive capital flows that went through the the finance group. Huge individual bonuses were gained from that capital flow.  There were few financial products GE Capital wasn’t trading in.

GE Capital had huge risk exposure when the financial market crisis hit.  Since the unit represented such a large share of GE earnings and the cash flow management responsibilities for GE’s industrial businesses, when the financial crisis picked up steam after the Lehman Brothers bankruptcy, GE as a whole was put at risk.

Overnight, GE formed GE Bank which allowed them to gain access to the Federal Reserve short run funding facilities.

This should sound familiar.

Goldman Sachs formed Goldman Bank to gain access to Fed lending.

AIG was a similar story, without the need to form the bank.

AIG the insurance company long ago formed AIG Financial.  A company as large as AIG has a lots of free cash flow.  What better way to generate higher returns for the parent company than by using that free cash flow for financial market speculation.  AIG Financial was an internal investment banking unit making markets and trading in almost every financial product there was.  They were an aggressive group and very successful for a long time.  Were it not for the Credit Default Swap AIG Financial created and sold, most of the rest of the finance world, and AIG itself, very likely would have come out of the housing collapse comparatively unscathed.

The repeal of the Glass-Steagall Act under the Clinton Administration which had kept commercial banking separate from investment banking, too much leverage, risk management tools that proved far less accurate than needed, misused financial products, and the assumed too-big-to-fail protection coalesced to help exacerbate the housing crisis into a financial crisis and what became one of America’s most severe economic downturns.

Judge that as you will.  The Fed as lender of last resort stepped in to stave off further collapse and made money in doing so.

Note:  most of the other non-financial companies who gained access to Fed lending were allowed to because of the freezing up of the Commercial Paper and Money Market Mutual Fund markets.  The Fed set up specific lending facilities to get these specific markets functioning properly again in order to facilitate wage payments, vendor payments and the like.