The score: CIT group styles itself as a "bridge between Wall Street and Main Street". Based in NY, CIT is a lender to small and mid-sized companies, which received $2.3bn in taxpayer funds in December (reported by CNN). Jul09, over six months later, it is trying to persuade policymakers/regulators to extend the aid package. CIT share price has been slashed 37% in the past month to $1.35. CDS has skyrocketed. Lawyers have apparently been hired to explore a bankruptcy filing.
Washington is in a quandary - what should it do? You are Washington.
on the one hand,
a) you need to hold the private sector accountable for its actions.
On the other hand,
b) you need to evaluate the impact of non-intervention on the health of the financial system.
The old issue of moral hazard and bailouts.
The cash crunch faced by CIT is described by CNN as follows: "Like many finance companies, CIT funded its operations by borrowing in the debt markets. Question: to what extent did debt market funding contribute to CIT's collapse?
But the collapse of Lehman all but closed those markets to finance companies -- prompting CIT and bigger players, ranging from Goldman Sachs (GS, Fortune 500) and American Express (AXP, Fortune 500), to hurriedly convert themselves to banks." The problem with debt is you have to keep paying it off. CIT has $1bn in debt to pay off next month.
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