Small Businesses Call CIT's Bluff; Government Says 'No' to Further Aid

| About: CIT Group (CIT)

As I said in a recent article (Let CIT Fail; The Business Model is Broken), the government should stand clear and let the free markets work this CIT (NYSE:CIT) situation out.

It looks like the government agrees with me. CIT just announced that their discussions with government agencies have ceased.

I think that there is virtually no chance that CIT will recover from this and it would have been a complete waste of taxpayer money if the government had stepped in. Like most other banks, CIT is paralyzed by the bad assets that are on its books. CIT is a "zombie bank". The company can't continue lending because its cost of capital is too high and it will eventually bleed to death from its deteriorating portfolio. Why risk more taxpayer money?

I have a feeling that the regional banks are drooling over a potential CIT failure. Small business loans have always been the bread and butter of a regional bank and they should be able to fill any shortage of credit left by CIT's destruction.

It's absolutely appalling that CIT has been playing the "think about the small business owner" card in an attempt to drum up sympathy from the FDIC. Well, according to a recent Bloomberg article, the small business owners aren't as worried as CIT makes them out to be...

CIT Group Inc.’s (CIT) plea for a second federal bailout may be undermined by a survey of 758 small firms that shows most have little trouble getting credit.

A “very low” percentage consider financing their “top business problem,” according to June data released yesterday by the National Federation of Independent Businesses. The net percentage of owners reporting loans were harder to get fell to 14 percent from 16 percent, said the NFIB.

Regulators at the Treasury, Federal Reserve and Federal Deposit Insurance Corp. are debating whether to risk more taxpayer funds, on top of the $2.33 billion granted to CIT in December, to keep the lender afloat. Standard & Poor’s said this week CIT may go bankrupt without U.S. help. New York-based CIT’s supporters point to 1 million customers who may lose funding, including about 300,000 retailers.

“Was this good money thrown away?” said Jim Barth, former chief economist at the Office of Thrift Supervision. Regulators may not offer aid if they conclude CIT’s failure isn’t a systemic threat, he said. “Sometimes in the process of destruction, you rebuild a stronger foundation,” he said.

I'm glad that someone is finally calling CIT's bluff. Shame on them for trying to hold the small businesses up for ransom...

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