CIT To Go Bankrupt, And American Taxpayers Likely To Lose $2.3 Billion

Did the American taxpayer unnecessarily take a $2.3 billion hit on financing provided to the now bankrupt entity known as CIT (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 10 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 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.

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Comment by JOE

2009-11-03 18:56:56

USA IS THE NEXT ZIMBABWE. A BANKRUPT NATION. NO JOBS. IF THE US DOES NOT HAVE MONEY THEY SIMPLY PRINT IT. NO DISCIPLINE.

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