Yesterday, General Electric (NYSE:GE) held an investor day that included a much-anticipated "deep dive" into GE Capital. Investors have battered the conglomerate's shares this year, sending them down nearly 40%, over concerns about the exposures and profitability of its lending arm. While GE did reaffirm its 2009 earnings estimate for GE Capital of $5 billion – a figure that is widely considered to be inflated -- GE's own presentation shows that number is at significant risk.

Look out for the 3-scenario monte
Indeed, the $5 billion corresponds to GE's base scenario, which has unemployment peaking at 8.5% and US GDP declining by 1.8%. GE looked at two other cases based on the Fed's base and adverse scenarios for the U.S. economy, under which it estimates GE Capital would earn $2-$2.5 billion and zero, respectively. Unfortunately, there isn't much to separate GE's base scenario from the Fed's base case which is characterized by unemployment peaking at 9.3% and U.S. GDP dropping by 2%.

Even the Fed's adverse scenario (peak unemployment: 10.1%, U.S. GDP: (3.3%)) looks remarkably achievable. Investors who are focused on a single point estimate ($5 billion) in that context are setting themselves up to be disappointed – I think the likelihood that GE will achieve that number is almost zero.

Take commercial real estate, for example...
In its fourth quarter, Goldman Sachs (NYSE:GS), applying mark-to-market accounting, wrote the value of its commercial real estate equity investments down by 25%. Meanwhile, GE's writedowns on its commercial real estate holdings last year totaled less than 1% of their value.

Unlike Goldman, Morgan Stanley (NYSE:MS) or Merrill Lynch (now part of Bank of America (NYSE:BAC)), GE doesn't mark its commercial real estate portfolio against market values, arguing that these are long-term holdings. Instead, it values the assets on the basis of projected cashflows. In principel, I have no problem with that choice, but the discrepancy here is too large to simply put down to Mr. Market's depressive mood.

Who would you rather lend to: Turkey or GE Capital?
Either way, the credit default swap market took some comfort from GE's extra disclosure. The cost of insuring GE Capital's debt fell to 7.5% upfront yesterday (from 9% on Wednesday) and 5% annually (in order to insure $10 million of GE bonds against default over five years, one would need to pay $750,000 upfront and $500,000 annually).

In terms of the annual cost, that is a lot cheaper than that for insurers Metlife (NYSE:MET), Prudential (NYSE:PRU) or Hartford Financial (NYSE:HIG), which ranged between 8.5% and 9% on Wednesday. GE Capital is hardly off the hook yet, though – the Republics of Hungary and Turkey are both considered to be better credits. I think stock investors should take a cue from credit default swap traders (here, but not always): the risk that earnings at GE Capital will deteriorate beyond management's expectations are very significant.

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Alex Dumortier, CFA has no beneficial interest in any of the companies mentioned in this article. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.