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UPDATE: CIT-go Into Bankruptcy? Yes…and American Taxpayers Likely To Lose $2.3 Billion

Posted by Larry Doyle on November 2, 2009 9:08 AM |

Did the American taxpayer unnecessarily take a $2.3 billion hit on financing provided to the now bankrupt entity known as CIT? You bet. It’s only money we don’t have, right? This is also true.

In the midst of so many other dramatic developments on our global economic landscape, people may lose sight of the fact that the handwriting was on the wall ten months ago for this middle market lender. That bankruptcy handwriting was crystallized this past July. I addressed the likelihood in my commentary of July 21st, “CIT-go Into Bankruptcy?”, and posed the following questions at that time:

I thought CIT pulled the rabbit out of the hat in arranging $3 billion in financing yesterday. What happened? Let’s navigate this institution and shed some light where Wall Street may care to keep us in the dark.

> Why is the stock plummeting and why are analysts speculating it may very well file for bankruptcy?

> What did the $3 billion financing accomplish?

> Were certain unsecured creditors just abused by this transaction?

> Are CIT shareholders about to be wiped out?

> Will CIT be a precursor for other lenders to the middle and smaller markets?

Now let’s review the particulars we learn about the prepackaged bankruptcy filed over the weekend by CIT. Bloomberg provides details in CIT’s Bankruptcy May Help Bondholders and Erase Taxpayers Stake:

CIT Group Inc.’s decision to seek court protection probably will keep money flowing to bondholders and 1 million customers of the 101-year-old commercial lender. Shareholders and taxpayers won’t be as fortunate.

CIT’s Chapter 11 bankruptcy may give bondholders new notes at 70 cents on the dollar plus new common stock, and Chief Executive Officer Jeffrey Peek said clients will be able to get funds. Common stock owners could be mostly wiped out, and the U.S. Treasury Department said it won’t recoup much, if any, of the $2.33 billion of taxpayer money that went into CIT, the largest firm to go bankrupt after getting a federal bailout.

The question begs as to why the wizards in Washington allowed CIT to convert to a bank-holding company last December in order to receive TARP funds. In my opinion, the lack of discipline displayed by the Washington crowd in this CIT bankruptcy is rampant across a wide number of other situations. Washington neither has the political will nor courage to truly protect taxpayer interests.

I firmly believe CIT will be the first of many bankruptcies in which Washington’s ploy to “extend and pretend” entities which are already toast ultimately cost American taxpayers more in the long haul.

LD

Related Sense on Cents Commentary:
No ‘Get Out of Jail Free’ Card for CIT (July 10, 2009)
Random Thoughts on CIT (July 16, 2009)
CIT Gets ‘Don Corleone Financing’ (July 22, 2009)

  • JIM CAHILL

    I HAVE TO WONDER IF THE WIZARDS IN WASHINGTON ARE CONNECTED TO THE RUSSIAN KGB PHD PROGRAM ON HOW TO SINK THE UNITED STATES FINANCIALLY. I REFER TO MANY OF OUR SENATORS AND CONGRESSMAN AS “MODERN DAY BENEDICT ARNOLDS” WHO WILL SELL THERE SOULS TO THE HIGHEST BIDDER FOR MONEY AND POWER.

    ANY ONE WITH HALF A BRAIN CAN SEE THAT THE WHOLE SYSTEM IN WASHINGTON IS CORRUPT AND I THINK AMERICANS ARE ON THE VERGE OF A REVOLT TOMORROW AT THE ELECTION POLLS.

  • Randy Bowman

    Jim.. the only area I disagree with you is with reference to Americans on the verge of a revolt tomorrow at the election polls. Do you really believe that? I think we all are going to be very disappointed to find out once again how little people will do to effectuate sensible change in their government. I would love to believe your statement is true but I have believed such things over the past decade only to find every time that it counted that they either failed to show up, or worse, they did show up and were foolishly charmed by charisma and empty speeches and once again failed to deal with the facts at hand. While I hope and even pray that you are right, my money is betting they will once again either sit idly by and continue to be plucked by chickens or else vote in people who have even less of an interest in fixing the problems we face. Let’s hope I am wrong and you are right.

    • Larry Doyle

      Randy,

      Interesting that you would write these comments. I was mentioning something very similar to my better three quarters today. I also hope I am wrong. While I do sense a real sense of political unease in the country I am not so sure that people are taking actions necessary to truly become better informed and then hold pols accountable.

      • Randy Bowman

        Well Larry.. in that regard, I have been sensing a real “divide” amongst people in this country about the right path to take to move forward toward recovery. I am still astounded to this day to find so many who want the Government to protect them from almost everything and we know with absolute certainty that is one thing Governments almost never do. I think I have finally woken up late in this game to find that I am no longer in the majority and yes, they ARE silent as the saying goes.

        The current administration is, after 10 months in office, still blaming the prior administration for their own failure to take sensible actions and appears happy to shine a false light on racism to take up the public’s attention instead of owning up to their responsibilities. I am afraid we have many more rude awakenings to experience over the next few years. Let’s hope we all muddle through somehow.

  • Bill

    CIT obviously lacked the political connections of such as GMAC, Goldman Sachs et al.

    • Larry Doyle

      Bill,

      I think what CIT lacked was a significant union presence.

  • Randy Bowman

    And I say, you are both right and thank God they lacked both… or we taxpayers would have had at least another $3 billion stolen from us by our Government and tossed down the proverbial rat-hole in the continued privatization of profits and socialization of losses, something we should all be raising absolute hell about.






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