Blue Crab Boulevard

You Know Those Wonderful Signs That The Economy Is Recovering?

Just kidding! CIT just filed for bankruptcy. The major source of funding for small business just went under. The major source for short-term loans for wholesalers who supply more than 300,000 retailers just bit the dust.

Analysts have warned that already ailing sectors, like retailers, could be hit especially hard, since CIT serves as the short-term financier for about 2,000 vendors that supply merchandise to more than 300,000 stores.

Consumer spending drives more than 2/3 of the American economy. Things just got a lot worse.

Expect the Wizard of O’s munchkin chorus to redouble their chorus of “You’re out of the woods, you’re out of the dark” until the veins stand out in their necks. But the fact is, this is a major, major blow to the very sector of the economy that must recover.

The economy may be out of the woods as Obama and his diminutive brain trust aver, but if so, it just took a swan dive into a septic tank.

Economy | Gaius November 1, 2009

6 Comments

By Dan Patterson, November 1, 2009 @ 6:18 pm

My small mind is confused about the details of the CIT issue. A quote from the Washington Post article: “…prepackaged reorganization plan which will reduce total debt by $10 billion while allowing the company to continue to do business.” Does that reorg plan mean that funding to current clients will continue? And will CIT seek additional business clients?

At best this reorg will cause ripples through the business funding networks. The implications beyond that are to be seen.

Dan Patterson
By Gaius, November 1, 2009 @ 7:31 pm

CIT is currently loaning a fraction of a fraction of what it did just a short time ago. Those measly 10 billion dollars come out of the pockets of investors. That is wealth lost, not redistributed, not used for other purposes – like creating jobs. It’s just gone.

I realize that $10 billion isn’t what it was before Obama’s trillion dollar deficits, but to me, $10 billion is more than just folding money.

If you got burned out of even $100 would you be inclined to put your money at risk again?
By crosspatch, November 1, 2009 @ 7:48 pm

This is what bugs me:

Under the bankruptcy plan, CIT bondholders would recover 70 cents on the dollar in new notes and equity in the reorganized company. But the government, whose investment was in the form of preferred shares, probably would recover nothing.

Wasn’t the government supposed to score a PROFIT from these bailouts?

The sound of our tax dollars circling the bowl.
By martian, November 2, 2009 @ 9:01 am

That’s the biggest point that no one is talking about, crosspatch, CIT received massive amounts of government bailout money, stimulus money – OUR money and it’s still declaring bankruptcy. The bailout apparently did nothing for them. What does that imply about other financial institutions that received bailout stimulus funds? Is CIT just the first domino to fall? This is a very worrying development.
By gary gulrud, November 2, 2009 @ 12:17 pm

“The sound of our tax dollars circling the bowl.”

$2.3 billion in TARP money, smoke and ashes. Just the beginning folks. Megan McArdle was foaming “forget hyperinflation” the government cannot inflate away future tax obligations.

I am so relieved. On or about 2025 interest payments on existing public debt will exceed GDP but our kids can just negotiate a refinancing plan. That’ll keep hyperinflation cowed.
By Tully, November 2, 2009 @ 4:18 pm

“…the Wizard of O’s munchkin chorus …”

Phrase of the day, filed for future re-deployment!