CIT Insults Taxpayers Once Again with John Thain Appointment

Includes: BAC, CIT, GS, KBE, XLF
by: Linus Wilson

Bloomberg reports that the imperial bailout CEO is back. It is insulting that John Thain will be given the reins of another public company. Especially a company, CIT Group, that handed taxpayers the largest loss of the bank bailouts save American International Group (NYSE:AIG).

John Thain used his crony capitalism connections with the Secretary of Treasury Hank Paulson to pass of his bankrupt company on Bank of America's (NYSE:BAC) shareholders. In 1999, John Thain led a coup at Goldman Sachs that elevated Hank Paulson to Goldman Sachs CEO and pushed his mentor John Corzine onto the voters of New Jersey and out of the top job at Goldman Sachs. In 2008, Thain sold a bankrupt company with $27.6 billion in losses, Merrill Lynch, to Bank of America.

All the while, Thain insisted on $3.6 billion in guaranteed bonuses for the bankers at Merrill Lynch. He walked away with a cool $44 million for himself. These losses lead to taxpayers extending a total of $45 billion in preferred stock and an $118 billion asset guarantee that Bank of America skipped out on 90 percent of the premiums for. Taxpayers got lucky. Taxpayers did not have to pay out on the insurance and got their investment back with interest. Bank of America exited the Troubled Asset Relief Program (TARP) in December, but its shareholders were tens of billions of dollars poorer for buying Thain's company that was hiding massive losses.

Now he takes the reins of the only large financial institution in the bank bailout called the Capital Purchase Program (NYSE:CPP) to hand taxpayers a billion plus loss, $2.33 billion to be exact. Yet, of course, he has secured a nice compensation package for himself with money available because CIT no longer has to pay those dividends on the taxpayers' preferred stock. It appears that CIT's board hopes the king of bailout CEOs will enrich their shareholders with the taxpayers' largess the same way that he did with Merrill Lynch. I think his crony capitalism connections are no good anymore, and Chapter 22 is a more likely scenario. Any investor who believes earnings reports coming from a company run by John Thain should know better and run the other way.

Disclosure: I only have long positions in broad-based index funds and do not own individual securities issued by the companies mentioned.