Jack Welch says U.S. faces "deep downturn"

By Nick Zieminski

NEW YORK (Reuters) - Former General Electric Co (GE.N) Chairman and Chief Executive Officer Jack Welch said the U.S. economy faces a deep downturn in coming quarters, and he supports a proposed $700 billion government rescue package for the financial sector.

"I now believe we are in for one hell of a deep downturn," Welch told the World Business Forum in New York on Wednesday, adding that the first quarter of 2009 will likely be "brutal."

Until recently, Welch said, he had believed the U.S. economy could avoid recession, but he has changed his mind.

"I am now caving," he said. "Get ready for real tough times. They're coming. There is no credit available."

Welch said mortgage lenders, legislators, investment bankers and others are all to blame for the crisis, which stemmed from easy credit and investors' appetite for yield.

"The problem was money didn't cost anything," Welch said. "People took swings."

He likened the crisis to Agatha Christie's "Murder on the Orient Express," in which all the suspects turn out to be guilty; but he singled out the role of investment banks in the crisis.

"We have to look at the damn investment bankers," he said. "They're playing with other people's money. The only penalty was a cut in their bonus, not their head."

Welch praised the actions taken so far by Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and New York Fed President Timothy Geithner, calling them "brilliant public servants" who have "not let ideology get in the way of taking action."

"Thank God we have Bernanke, Paulson and Geithner," Welch said. "We have to act."

He said the U.S. economy would eventually recover, but this recovery would likely be gradual rather than V-shaped.

Asked whether the current crisis would change the character or shape of the U.S. capitalist system, he held his index fingers about 5 inches apart and answered, "For this long."

The 72-year-old Welch served as chairman and chief executive of GE from 1981 to 2001 and currently runs an advisory firm for business leaders. He has written or co-written two books on leadership.

He said the biggest change since his GE tenure is that globalization has intensified, and the world is more interconnected. As economies become more interdependent, he said, prospects for world peace improve.

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