CIT’s filing for bankruptcy. We have questions, and you may too.
Q: Who is CIT Group?
A: CIT Group is a commercial and consumer financier. Basically, they extend lines of credit to their clients – in this case, small-to-medium sized American businesses. With credit markets in turmoil, operating costs outpaced their received payments. The government handed over a $2.33 billion cut of the Troubled Asset Relief Program, to ensure CIT could keep up its basic overhead. It seems that was not enough, with the corporation narrowly avoiding Chapter 11 for some time now.
Q: What is Chapter 11 Bankruptcy?
A: Chapter 11 seeks to reorganize a failing business or corporation. Over the summer, CIT Group argued that being forced into the standard procedures for Chapter 11 would cripple its customers. On Sunday, CIT entered a different kind of bankruptcy, from which it will emerge from court protection by the end of 2009 under the ownership of its creditors, who widely supported the reorganization plan.
Q: So what?
A: The bankruptcy filing minimizes harm to its bondholders and core customers. CIT’s customers are classically American – small-to-medium sized businesses mostly engaged in retail sales. In this case, timing is everything. With the holiday shopping season on the horizon, CIT’s clientele is exactly the sort that needs support.
Q: Who’s upset about this?
A: The American taxpayer, who sees a cool $2.33 billion flushed down the drain. Complaints are on the rise in internet forums. Most see this as inconsistency by the Fed, who promised assistance only to the largest banking institutions but is now supporting smaller ones. Adding salt to the wound, CIT Group will never have to repay the $2.33 billion bailout money.
Q: What’s a Joe or Judy Taxpayer to do?
A: Nothing, for now, except to wait and see what happens. If anything, people might try to look on the brighter side of the issue and take stock of the fact that the markets are strong enough for corporations to rely on credit lines outside the government’s pocket. Public outrage and cathartic rants help to show where mistakes have been made, but don’t make this pill any easier to swallow.
What’s the best strategy for the taxpayer in this mess?
Posted by Tyler on November 6, 2009 at 1:32 pm.
