The issuing of $12 billion in common stock at $22.25 per share is an act of extreme desperation. How can investors have confidence in a company that bought back 97 million shares for $3.1 billion at an average price of $31.69 in the first 9 months of 2008 - then issued $12 billion worth of stock at $22.25 in October?

Not only did GE buy back $3.1 billion of stock in 2008, it also bought back $27 billion of stock in the prior 3 years at an average price of $36.46 - in effect, buying high and selling low. Were Mr. Immelt focused on something other than beating short-term earnings goals by wasting $30 billion on share buybacks, he wouldn’t have had to beg Warren Buffett for $3 billion last month, and on very poor terms.

Most people know GE as the manufacturer of light bulbs, appliances and jet engines. In truth, GE is a bank disguised as an industrial conglomerate. GE Capital, which truly dominates the company’s fortunes, has 3 subdivisions: GE Commercial Finance, GE Money, and GE Consumer Finance.

In 2003, GE Capital generated $5.9 billion of GE’s $17 billion of profits, or 35%. By 2007, GE Capital was generating $12.2 billion out of $29 billion, or 42% of profits. Being a bank during the boom years of 2004 to 2007 did wonders for GE’s bottom line. Now, being a bank is a rocky path to destruction.

GE Capital is enormously leveraged to consumers throughout the world. It issues credit cards for Wal-Mart (WMT), Lowe’s (LOW), IKEA, and hundreds of other retailers worldwide. GE Capital provides private-label credit-card programs, installment lending, bankcards and financial services for over 130 million customers, including consumers, retailers, manufacturers, mortgage lenders, auto dealers and health-care providers. It also owns 1,800 commercial airplanes, leased to 225 airlines.

GE Capital has also been a huge benefit to the industrial side of the business, providing financing for customers that buy GE power turbines, jet engines, windmills, locomotives and other big-ticket items. The crucial question: Whether the people and companies who received loans from GE Capital can pay them back. GE’s future depends upon the answer.

GE’s AAA rating allows GE Capital to borrow funds at lower rates than US banks. Their cost of capital has been 7.3%. Losing that rating would therefore be disastrous. Between 2002 and 2006, GE Capital did what most other banks did: It levered up. Their ratio of debt to equity rose from 6.6 to 8.1, while profits quadrupled. GE Capital jumped into the subprime mortgage market in 2004, buying WMC Mortgage; it sold it in 2007, after racking up losses of $1 billion. GE also unloaded a Japanese consumer lending company at a $1.2 billion loss in 2007.

It’s clear that risk management had taken a back seat at GE Capital, whose profits plunged 38% in the third quarter - the main reason for GE’s earnings miss.