Between The Numbers

CIT's 5-Step Road to Too Big to Fail

A key step in getting "too big to fail" would be for CIT to extend hundreds of millions in loans and lines of credit to politically connected companies at below market rates. That way they can credibly argue that a bankruptcy would cause the failure of many other businesses. With only $75B if assets, it isn't getting the attention of the treasury. Lever that up a few times, and we could have some significant systematic disruption if they failed. Maybe sell a few hundred billion notional in CDS, hopefully choosing GS, BofA, Citi, and JPM as the counterparties. News sites reporting today the bailout has the US on the hook for $13T, so what is another $10B or so?