Is CIT Bankrupt Yet?
We will find out soon enough, but the expectations are that by the time you read this, CIT may be already preparing to file.
I have mixed feelings about this:
“CIT is a lender to nearly a million mostly small and midsize businesses and companies, and while its failure may not jolt financial markets in a large way, it could hurt the flow of credit to many businesses to whom banks traditionally won’t lend.
The government gave the bank-holding company $2.3 billion under the Troubled Asset Relief Program last year but so far hasn’t included CIT in a separate program that would allow it to issue debt at low interest rates.
While CIT has limped through the credit crisis, the lender is nearing crisis point, facing $2.7 billion in debt due from now till year end that investors worry it may not be able to make.”
There shouldn’t be bailouts of insolvent companies — but you can see why this would make for a tempting target of government largesse:
“CIT Group Inc., the century-old lender that hasn’t been able to persuade the government to back its debt sales, says its demise would put 760 manufacturing clients at risk of failure and “precipitate a crisis” for as many as 300,000 retailers.
A collapse would ripple across the “small and medium-sized businesses who rely on CIT to operate — to pay their vendors, ship goods to their customers and make their payroll,” the New York-based lender said in internal documents obtained by Bloomberg News that make the case for its importance to the U.S. economy. CIT spokesman Curt Ritter declined to comment on the documents.”
Bailing out CIT will make a mockery of “systemic risk” — as if it wasn’t already subjected to humiliating abuse as an economic concept. Further, it introduces “economic risk” as a basis for government intervention. And that means just about any company qualifies . . .
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Sources:
CIT Group Says Its Failure Risks Demise of Customers
Pierre Paulden and Caroline Salas
Bloomberg, July 13 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=antG4OSxVsHQ
CIT Group Scrambles to Survive, Avoid a Run
JEFFREY MCCRACKEN and SERENA NG
WSJ, July 13, 2009
http://online.wsj.com/article/SB124744080839729811.html
CIT Group said to hire bankruptcy adviser
MAE ANDERSON
AP, July 11, 2009
http://www.google.com/hostednews/ap/article/ALeqM5jDoBpAClneuL3KFaa32IRD9WFhaAD99CC4HO0
CIT Offers Litmus Test for Washington’s Faith in the System
PETER EAVIS
WSJ, July 11, 2009
http://online.wsj.com/article/SB124726664858925543.html
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July 13th, 2009 at 6:54 am
“And that means just about any company qualifies . . .”
_________________
The law ostensibly treats corporations as persons, despite the fact that corporations cannot be regulated as individual, natural people are. Being that the Constitution vests power in “the People,” corporations have found and used this distinction as an entry point into our governmental system, leading to the corporatist/fascist bastardization we, as relatively weak individuals, are subject to today (in support of this observation, it is interesting to note that although corporations cannot vote as natural people can, their influence on elections, legislation and government is far grater than that of any person and/or virtually any voting block of people).
We have become a nation governed of, by, and for corporate interests.
Ultimately, we will have transformative social and political change from this (as soon as the pain outweighs the benefit), and it will not serve intrenched political/corporate interests well.
July 13th, 2009 at 7:07 am
Isn’t CIT a spinoff from Tyco? How much of the corruption/financial shenanigans held over? Was there a difference in management for GE/GECapital vs. Tyco/CIT?
July 13th, 2009 at 7:10 am
We looked at this last week. These guys transformed themselves into a bank 6 months ago to take bailout money, and obviously it didn’t work. Reorganize and move on.
July 13th, 2009 at 7:16 am
[...] Ritholtz on the CIT sitch and whether or not we’re talking systemic risk (TBP) [...]
July 13th, 2009 at 7:51 am
That’s why the economy is going to tank.
Government is supporting anything that has to do with money and the rest is getting squeezed.
Up to now, government has only focused on the America’s biggest business of the last few decades: money printing. And can’t let go.
Soon companies’ only focus will be on cash management, forget product.
July 13th, 2009 at 8:03 am
How can anything ever get better if nothing is allowed to fail? Where is the incentive and reward for being a profitable, well-run corporation? Why not let CIT fail and let a well-managed corporation pick up the pieces? Yes it would cause all sorts of problems in the short-term but wouldn’t everyone be better off in the long run? Have the policy makers not looked at Japan over the last nearly 20 years?
July 13th, 2009 at 8:16 am
Why not let CIT fail and let a well-managed corporation pick up the pieces?
——–
Yes. They’re going to let CIT fail and well run JP Morgan will pick up the pieces. LOL.
July 13th, 2009 at 8:26 am
I think what a lot of people have not understood yet is that the credit bubble has created excess at every level of the economy: small, mid and large sizec companies. The bubble has created artificial demand.
No. The average American family does not need never used dust collecting desks and chairs in the middle of each staircase. Netier does it need a washing machine on each floor. And the list goes on and on and on.
Many small and medium firms should not have existed in the first place. So what we are going to see is the economy drop to a more sustainable level. Small and medium companies are going to drop like flies and the larger cos, which are joined at the hip of big governement are going to be propped up.
That’s change we can believe in.
July 13th, 2009 at 8:45 am
http://seekingalpha.com/article/148358-cit-group-woes-shatter-illusions-of-recovery
CIT Group Woes Shatter Illusions of Recovery
“That a company the size of CIT group is unable to access its traditional funding sources, absent an explicit government guarantee, is a direct blow to the government’s assertion that the financial markets have recovered. The market has decided to test the government’s willingness to support an institution of CIT Group’s size, daring the Obama Administration to let this company fail. Such represents the Catch-22 that the federal government faces: to allow a failure of this size signals to the market that all corporations smaller than CIT are effectively on their own.”
July 13th, 2009 at 8:46 am
it would break my heart to see C go- really it would- i love that bank- i cried all night when CC closed for good and Linen and Things closed- and now no more Pontiac or Hummer-
I wish things would always just stay the same boring way they are now
July 13th, 2009 at 8:48 am
Linen and Things:
FYI, our Linen and Things has just been replace with a Value Village. A sign of the times?
July 13th, 2009 at 8:55 am
the problem with socialism is that when government picks winners they invariably pick losers by default as well. The losers don’t usually have the bully pulpit to shame the government because they end up being smaller corps. and individuals which only show up in statistics
July 13th, 2009 at 9:00 am
@danm
Our Linens & Things has been replaced with Boards & Nails…
July 13th, 2009 at 9:31 am
If only CIT made car loans and had a unionized work force. Not enought in political contributions either, you get what you pay for.
July 13th, 2009 at 9:59 am
Ah well…I’m sure his “authority and ability” somehow involves my pocketbook:
July 13 (Bloomberg) — Treasury Secretary Timothy Geithner said the U.S. government has the authority and the ability to address the crisis at CIT Group Inc.
“I’m actually pretty confident in that context we have the authority and the ability to make sensible choices,” he told reporters in London at a press conference.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6abXRGrHHaU
~We are simply aiding and abetting our own destruction by trying to forestall the inevitable weaning of companies that no longer make sense or that are poorly managed. The bottom line is that the US government is not an endless fount of wealth, that in fact, it creates no wealth, except that attendant to the security provided by those nukes. By our refusal to let companies fail, by our determination to continue the ways of the past that got us to this precipice of disaster, we are simply speeding up the process that will ultimately lead to our day of reckoning. Ironically, in that regard, the feckless government is unintentionally getting us closer to a final economic conflagration from which some real green shoots might emerge.
July 13th, 2009 at 10:29 am
Great little jab from MacroMan this morning on this topic:
“To be sure, the newsflow has been broadly bearish thus far. CIT looks to be on the brink of imminent demise- well, they would be if we didn’t live in a world where anyone larger than an eight-year-old’s lemonade stand wasn’t deemed “too big to fail.”"
From: http://macro-man.blogspot.com/
July 13th, 2009 at 10:47 am
“…Ironically, in that regard, the feckless government is unintentionally getting us closer to a final economic conflagration from which some real green shoots might emerge…”
Curmudgeon,
w/this: “..the feckless government is unintentionally..”
unintentionally? are you being charitable? that’s not very Curmudgeonly, is it?
http://www.thefreedictionary.com/curmudgeonly
Seriously, their, the USG’s/UST’s/The FedRes’, ‘Mistakes’ are so Textbook, it’d be difficult Not to make the case that it Was *Intentional*.
http://www.thefreedictionary.com/intentional
July 13th, 2009 at 11:07 am
mcHap “How can anything ever get better if nothing is allowed to fail?”
just continue to play into this so called capitalist game and you’ll be sorry someday .. I’m with MA@6:54am that these corporation laws are creating monsters of TBT Fail/Fight …. the only retort is to have children or not .. then boarders will flow with immigrants to fill the void to be crushed by inovations in crowd control
…. unions come-up again (shill? or depressed forgotten?) .. unorganized groups get squeezed by larger forces (don’t you get that) … and unions helped negotiate fair trade for labor hours to provide a standard of living that once was called the American Standard of Living .. a mechanism to fund all other aspects of the American way (don’t you get that?) .. but Wall Street needed to squish that because the transfer of money to that WS Industry depended on it (till it DIDN’T)
July 13th, 2009 at 11:13 am
The government squandered any ability to overhaul the system and to bring back any semblance of accountability and respectability when it started picking winners and losers in September of last year.
July 13th, 2009 at 11:18 am
me “unorganized groups get squeezed by larger forces” … to extend that to you choirboys in here .. ie Shareholder Rights (if many here even invest in corporations anymore) (like seems the play of the century is what Chris Whalen is all on)
don’t you all think that the Corporation is all about this reblend IT reprint of mine “GM a benefits company masquerading as a car company” “the Europeans Koreans Chinese Indians all want in on that” AND WHY TF NOT – good for Dylan and Co that America was in the business of making stuff so that he had some years to trade on it for a living
July 13th, 2009 at 11:30 am
Speaking of bankruptcy…I know Barry likes charts and colored maps…
http://www.ft.com/cms/s/0/be5612a6-6c9a-11de-a6e6-00144feabdc0,dwp_uuid=e70ca99e-a4b0-11db-b0ef-0000779e2340.html
California’s financial troubles echo across the US
“Which one may be the next to follow California’s unenviable example of issuing IOUs to students and cancer patients? Our interactive graphic shows the “state of the states”, and shows those in most trouble. ”
Fiscal year 2010 will be a doozy…
July 13th, 2009 at 12:27 pm
“I’m actually pretty confident in that context we have the authority and the ability to make sensible choices,” he told reporters in London at a press conference.
….just not the incentive apparently :mrgreen:
July 13th, 2009 at 1:06 pm
@MEH,
I stand corrected…it has to be intentional. I wonder if Goldman has offered them all (the Fed and Tres) a revolving door the other way when it moves its headquarters to whatever part of the world they decide is better for making money once they’ve completely destroyed (if profitably for them) the US part of the world’s economy.
July 13th, 2009 at 2:06 pm
Barry, you say you have mixed feelings about bailing out CIT, which is more than understandable given the consequences of a non-bailout.
I always find your questions about the here and now most helpful. This is where we ought to be concentrating our minds and sweat equity.
In the end, a decision must be made and there will be criticisms either way. You appear to come down on the side of not bailing them out as it “would make a mockery of systemic risk” and “introduces economic risk” as a determinant of bailouts.
Personally, I agree with the non-bailout approach. I only wish there were far more chatter in the financial press on the consequences of this decision and that there were far more people weighing at the White House and Treasury departments (even just on the 800# comment lines) about the massive consequences of this decision.
July 15th, 2009 at 10:38 pm
[...] noted earlier, (Is CIT Bankrupt Yet?) it is likely that CIT is going to have to go [...]