Lefly

Should CIT Be Saved? I Think Not

Except, of course, that CIT was the #1 lender to small-to-medium-sized businesses in the US, according to the SBA -- the kind that make up the majority of employment in the economy, and account for over half of the non-farm GDP.

Not having CIT in the picture means that access to business loans, the foundation of entrepreneurship and capitalism, will be increasingly hard to come by.

Not to sound the gong of doom, but a CIT bankruptcy would send the economy into a significantly deeper recession: if the initial worry was that the credit markets had seized up, imagine the panic that will come when business owners are unable get financing to keep their companies running; when we have more failures like what's going on with Dunkin Donut franchisers, pushing more workers into unemployment.

CIT needs to be saved -- if GMAC was given approval for the TLGP, so should CIT!

Let CIT Fail: The Business Model Is Broken

You've got it backwards: the principal reason that CIT is struggling now is that the FDIC has been dragging its feet on approval for the TLGP application, which has led to an erosion of confidence from ratings agencies like Fitch (they've said so themselves)-- who have become over-reactionary, feeling heat from being basically the shills for bad investments.

It's a Catch-22: Effectively, CIT is being starved to death, because on the one hand, middle-market businesses are unable to borrow money from CIT, because its ratings have been cut; and its ability to issue bonds is hampered because the TLGP application has yet to be approved.

However, CIT could easily recover if the perception was that the Fed is going to support it. Its bond would have higher ratings, and it would be able to have access to liquidity.