CIT Group'S nearing liquidation under bankruptcy protection should go down as one of the Obama administration's great defeats in battling the financial crisis.
CIT may seek bankruptcy protection should its $29 billion exchange offer fall short. See full story.
It won't, however, mostly because champions of the "free market" will say how another bailout was avoided and they'll herald how competitors took up the slack of CIT's place in the market. They'll also say how the original loan agreement with bondholders kept CIT's demise from becoming a market panic.
The reality is a little less neat. Taxpayers will be owed, and likely will be made whole, a debt of $2.3 billion from the Troubled Asset Relief Program. Business owners will begin a guessing game as they wonder who will take over their CIT account and whether that account will be renewed. And Goldman Sachs Group Inc. will press for a $1 billion payment due to it under a 2008 rescue agreement, according to The Financial Times. See full story.
Again, Goldman has made brilliant use of credit default swaps, the derivatives that appear to have been so toxic to everyone else, including many who didn't hold them: U.S. taxpayers.
Goldman is just one of a number of beneficiaries of CIT's failure. Rivals such as GE Capital, a unit of General Electric Co. , Bank of America Corp. and Citigroup Inc. all received government aid even though they made poor credit decisions that fueled the crisis.
CIT made mistakes too, but unlike its competitors it's not deemed "too big to fail." But is it a small wonder to anyone that "too big to fail" firms are benefiting from CIT's demise?
Of course they are and now they can change more for factoring and other small business lending with CIT being out of the business.
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