Business lender CIT is orbiting the drain. I guess the honchos @ CIT didn’t watch Dennis Kneale’s show declaring an end to the recession.
The situation with CIT, which lends to such companies as Dell Computer, Dillards and Dunkin’ Donuts is saddled with the same debt problems inflicting (all?) the other banks and finance companies. CIT’s stock is worth about a dollar a share. I suspect CDS’s for the company’s debt is @ par.
The real story is the tug- of- war between the various agency players; Fed, FDIC and Treasury. Simon Johnson gives an excellent account of the action to date here @ The Baseline Scenario, so I won’t go into the details, here (for reasons of reducing my carbon footprint).
The issue of the day is obviously CIT. It’s hard to sort out the real news from clever PR/planted stories in this situation, but it looks like the FDIC is coming out strongly against being involved in a rescue package. Given Sheila Bair’s successful political positioning and strong popular appeal, it’s hard to see how – once dug in – the FDIC can be moved.
The lobbying frenzy has concentrated on CIT’s role in financing small and medium-sized business; “the recession will be deeper if CIT fails” is the refrain. This is a weak argument – it would be straightforward to refinance this part of CIT’s business without bailing out CIT’s creditors, and definitely without keeping top CIT executives in place; this is the essence of “negotiated conservatorship,” which is a proven model in the US.
The bottom line here is that the series of bailouts to date hasn’t solved anything and the line @ the Treasury Department loading dock grows ever longer.
At the same time, the battle for intellectual high ground between Sheila Bair (@ FDIC) and Tim ‘Bottom’ Geithner @ Treasury is in full roar with Bair beginning to pull ahead in the quest for one or the other agency head to appear to be a responsible grownup.
The term ‘bottom’ by the way is a gay reference, no offence meant to gay people.
More interesting input is here @ Chris Whalen, Institutional Risk Analyst, Bloomberg and Yahoo Finance. Johnson is absolutely right, this is a big story, similar to the collapse of Bear Stearns. Even if the company winds up being bailed out there will be aftereffects, likely to be seen in sharply widening credit spreads.