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So What About CIT?

Posted by Larry Doyle on July 15, 2009 10:20 AM |

Still so many questions on the CIT front. As Bloomberg highlights, CIT Presses U.S. Regulators for Aid to Forestall Cash Crunch:

CIT Group Inc., the small-business lender with $1 billion in bonds maturing next month, pressed for more aid from regulators who are reluctant to use taxpayer funds for a company that may not be a risk to the financial system, people familiar with the matter said.

Treasury officials have indicated in talks that they are reluctant to deploy funds from the $700 billion bank-rescue program, and the Federal Deposit Insurance Corp. continues to balk at debt guarantees, the people said. As of late yesterday, the Federal Reserve was considering granting permission to shift some CIT parent assets to its bank, two people said. That could boost the amount New York-based CIT could borrow from the Fed’s discount window, affording more time to restructure its debt.

The course of the talks may still change, and analysts have pointed to the potential political implications of letting a lender to thousands of borrowers at smaller businesses go bust after bailouts for some of the biggest Wall Street firms. CIT’s case underscores calls for new federal powers to allow an orderly wind-down of a bank holding company.

“CIT represents a difficult policy issue for Washington as there is sentiment to punish the fat cats and greed matched by what potential damage could be done against an economy struggling to regain momentum with all of its possible political fallout,” said Scott MacDonald, head of research at Stamford, Connecticut-based Aladdin Capital Management LLC.

Sameer Gokhale of Keefe Bruyette & Woods discusses possible outcomes on Bloomberg News:

As I questioned last week in my initial post about CIT, “Where do you draw the line?”

LD

  • Aaron kramer

    Looks like CIT is toast LD.

  • Aaron kramer
    • Larry Doyle

      Aaron….my initial instincts are that this development will be a net positive for the market. There will certainly be some companies that take a hit and people will lose jobs.

      But CIT does not present a systemic risk.

  • Aaron kramer

    That is a good point LD and I concur. The market is now clearly differentiating between winners and losers. The winners get government money and the losers don’t. I think the market is also rallying because cap and tax, and health care legislation are going to pass.

    Cap and tax will provide massive one time profits for firms like GE as it sells its permits and moves production to Asia. GE also will benefit from trading CO2,selling CO2 software for measuring footprints and renewable energy equipment.

    Large companies will also off load expensive health care to the government at significant discount. Additionally the smaller, nimbler companies, the competition for the large international firms will get crushed. They frequently offer little or no health care to the majority of their employees. These firms won’t receive any CO2 permits and can’t move overseas.

    All of the bailouts and current legislation rolling through Congress have favored large multinational institutions at the expense of taxpayers and small businesses. Think about an employees making 100K with an annual healthcare benefit package of 15K. He or she will pay more for energy get government health care and pay substantially higher taxes for the privilege. At the same time this employee will not get the 15K as an increase in salary to soften the tax burden. The large corporation will take the money pay the government a $1500 fine for not offering healthcare and add the $13500 to the bottom line.






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