CIT group officially declares bankruptcy

Did a search and did not see it posted yet. It seems the inevtitable has finally happened CIT group declared for chapter 11 today. Now I have been told by a few people that if/when they finally went under it would be the start of TSHTF

Not sure how true this is, im looking for thoughts and opinions on this.

Linky for proof in not talking out my butt.

CIT files for chapter 11

Edited for better link

[edit on 11/1/0909 by Trayen11]

Wonder what the markets will do about this tomorrow. For me my guess it will do nothing over it, due to the fact that the markets aremanufactured these days anyway. But the fall of CIT might be the begining of the Commercial real-estate collapse.

What is the difference between CIT group and CITI group and how it effects one or the other.

Originally posted by charlie0

What is the difference between CIT group and CITI group and how it effects one or the other.

I'm not as savy as most here when it comes to American companies. But if I am correct they are not the same company. I could be wrong though.

CIT is a major lender to small business and such. So, I'm thinking this could be bad as it could destabalize the already fragile commercial real-estate bubble.

Originally posted by charlie0

What is the difference between CIT group and CITI group and how it effects one or the other.

About $1.30 a share.
money.cnn.com...

Trayen11 has it right. Not the same but the impact/fallout may still prove significant nonetheless.

THAT, tin hat on, OR the near identical similarity of "names" (think 5 sec. blurb on the SnooZe) is intended to effect, steer or "guide" the Market(s). (?)

Here is a good Source of information on CIT.

As I understand this, a MILLION little companies are concerned by this bankrupcy.

Bingo !

The 26st of October's doom had only a week's miss.

Possible impact of this event

CIT plays an important behind-the-scenes role in the retail industry. When stores place orders for merchandise, they typically have two to three months to pay for the goods. Suppliers hand those IOUs over to lenders such as CIT -- a process known as factoring -- which in turn provide suppliers with cash upfront to make their merchandise. If that system were to be disrupted, industry experts said, the result could be barren store shelves and a ruined Christmas.

[edit on 1/11/2009 by orkson]

reply to post by orkson


With this news comes the potential that this action may now bring a surge in unemployment. The big boys at Goldman Sachs are making a pretty penny out of this bankruptcy. And they know full well what the ramification of this collapse will be. Why is the government allowing such a flagrant display of insider trading and racketeering? God only knows, but here's the thread I authored related to this. www.abovetopsecret.com...

Great post!

[edit on 1-11-2009 by projectvxn]

Funny thing is, I can easily see the markets up tomorrow as the big wigs there are going to say this was forseen for a while and the market has already adjusted to it. So you know it's not a big deal and all is rosey and the recession is still over.

Come on now people buy, buy, buy. All is well in the world (sarcastic words btw)

In my honest opinion, the government should have bailed out CIT.


Being an economy and finance major, this bankruptcy truly scares me.

i know corporations taking tax payer money is frowned upon by many, but this will have a monsterous impact on the economy.
Its a matter of choosing the lesser evil, really.

but we spent too much money on a failed stimulus package and bailing out other companies who failed before CIT.

reply to post by peacelove


The loan contracts on CITs books would have guaranteed that the tax payer would lose their money. Bailouts are a waste of time. Especially if the product is fraudulent, poorly structured, or designed to fail for a payoff.

reply to post by projectvxn


I would have to agree with you. I'm no expert, but it seems to me all the money the countries of the world have thrown at this problem has only seem to be some kind of stop-gap measure.

Kind of like trying to put a band-aid on a severed limb.

I think you're safe Trayen11 , and thanks for the post.

There are over 3 trillion net notional value...$3,120,189,939 to be exact...in credit default swaps listing CIT as the Reference Entity.

Link

In derivatives parlance , the CIT bankruptcy filing qualifies as a "credit event". Credit events trigger the payout on derivatives contracts from the financial institutions that wrote the contracts..to..the buyers of said contracts....

and bankruptcy wont halt the unwinding of these derivatives.

Courtesy of the wonderful 2005 bankruptcy reform bill , derivatives contracts are exempt from the asset freeze normally associated with the bankruptcy process.

And wouldn't you know...the wise guys at Goldman Sachs were the first to exploit this corruptible loophole....

Why Exempt Derivatives?

Goldman Sachs (GS) has done it again, deftly navigating markets to maximize its own returns and leave others nursing losses.

The deal in question is a loan Goldman made to the troubled lender CIT (CIT). The loan was dressed up as a derivative, which means Goldman can extract payments it is owed outside of the normal bankruptcy process.

Full Text

When the gub assumed control Fannie/Freddie in Sept 08 (credit event) , the FNM/FM derivatives unwind progressed swiftly through the system...first Lehman...then AIG > WAMU > Wachovia.

Just like 08 , we won't hear anything about the systemic effect of these toxic derivatives from our mainstream media mavens.....but lets see what happens here.

reply to post by OBE1


Thanks for the info, I look forward to reading the link.

CIT Group is a major lender for business equipment loans to small businesses. Same line of business as GE Capital, IBM Credit, etc.

Don't confuse the CIT Group with Citigroup/Citicorp. Two different businesses altogether, and completely unrelated.

The demise of CIT Group, and any of these lenders for that matter, be they banks, private finance firms, etc., is actually not a bad thing. You're getting rid of overly aggressive lenders that made reckless credit decisions. This is the end result of loosey-goosey, high risk, speculative lending to unqualified borrowers.

Now, there will hopefully be a return to intelligent, rational credit decision-making on behalf of our financial institutions, as a lot of the loosey-goosey lenders have gone bankrupt. Hopefully, the reckless behavior of our banks and financial institutions will have ended for good.

Will it affect small businesses? In the short run, yes. Credit is already tight enough as it is, and small businesses are going to have a hard time finding lending facilities.

Cash is king right now, and most entrepreneurs are clever enough and agile enough to navigate through these treacherous waters. Those that don't, won't be in business. This is where frugality, discipline, and avoiding debt pays off for the small business owner. Those business owners that went on a credit binge will likely shut their doors.

In the long run, however, businesses that operate without credit - and there are plenty of them out there (even big businesses) - are a lot stronger financially than businesses that have way too many loans. Over-leveraged borrowers are beholden to their lenders when the economy sours. Not a good way to run a business.

I look at the demise of our financial institutions as tragic, albeit necessary. In the short term, it will be very, very painful. But we're getting rid of a lot of reckless banks, lenders, and financial institutions that were way too lenient in their credit criteria. And the business owners that went on a credit binge will soon see their businesses fail. Tragic, painful, but necessary.

reply to post by CookieMonster09


You're simply wrong. There are not "plenty" of businesses that operate without credit. Credit = debt nowadays. Hardly any businesses nowadays have any significant amount of cash on hand to run their business for any length of time. Some of the top Fortune 500 companies in the US are in debt. For example, GE has been carrying larger and larger amounts of corporate debt for the past 25 years. MANY Fortune 500 companies are as fragile and indebted as the government bailing them out. The entire way businesses are run nowadays, and not just in the US, is downright awful. They are like individuals living pay check to paycheck counting on that breakthrough record profit year which never comes. The financial lives of many Americans are in turmoil. So are the financial lives of many corporations. After all, these are the same people running these businesses. It's hard to even compete in the business world these days without going into debt just like it's practically impossible to live your own life without going into debt. Our entire financial system is debt based. It's a house of cards and when a few cards fail the whole house comes tumbling down. Sorry but you're outlook on things sounds a little too rosy and optimistic = naive!

Zosy - No, not at all a rosy, optimistic outlook. Quite the contrary, mon frere.

I actually agree with you - to an extent. Yes, most businesses and most individual consumers are in way over their heads. Even large companies, as you suggest.

However, there are some individuals that are cash-rich, and debt-free. They are the minority. Rare individuals, but they are managing to survive the turmoil right now, and will likely be the ones that make it through this recession just fine. Who do you think is buying real estate these days? Cash-rich investors. People without much debt.

In terms of companies, believe it or not, there are some brand name companies that don't carry much debt. Microsoft, Texas Instruments, Fastenal, Apple Computers, T. Rowe Price. They are out there, and they are most likely to weather the storm. And what a storm it is.

reply to post by CookieMonster09


Generally a good post, but I think you underestimate how harsh the deleveraging will be, and how many people and companies will be deeply, and negatively, impacted. The entire global financial archetecture is more vulnerable than most people realise. But one way or another we've got let the wolf blow this house of straw down before we can build a house of brick, as it were. My only hope is that somehow we can do it in a controlled manner, like an alcoholic on a program. Unfortunately the track record seems to indicate the government, media, and business worlds prefer to hand the alkie another drink and say, "see, everything's OK now."

Originally posted by CookieMonster09Now, there will hopefully be a return to intelligent, rational credit decision-making on behalf of our financial institutions.

Please excuse me while I wipe the tears of laughter from my eyes...

Laugh as you like, but the only banks and lenders that are going to survive are the ones that made sound, conservative lending decisions to qualified borrowers. All the loosey-goosey lenders are toast - Most have already filed bankruptcy.

So, yes, you will see a return to rationality in the lending world. It's already happened, and will continue to happen as the weak lenders are replaced with the strong, cash-rich banks with sound operations and prudent lending standards.

How many banks have to fail before you realize that this is true? How many crappy banks have to fail before you see that the stronger, more conservatively run banks are prevailing over the banks that lent too aggressively?

Generally a good post, but I think you underestimate how harsh the deleveraging will be, and how many people and companies will be deeply, and negatively, impacted.

Re-read my post. I am fully aware that it is going to be a very painful process, and a lot of people and companies are going to get wiped out. That's the reality.

NIKKEI is down pretty good so far. Wonder if CIT going under is a catalist to this drop??

Nikkei real time tracker.

reply to post by Trayen11


Guess that means that we tax payers are out the money the government sunk into CIT … All $2.3 billion.
Wonder just how many schools that would have bought? Forget schools how much beer would that have bought???