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  • July 16, 2009 11:14 AM EDT by Dagen McDowell

    CIT: A Test of Optimism

    All of our new-found optimism is about to be tested.

     

    After being rebuffed by Uncle Sam for an even bigger bailout, business-lender CIT Group is now teetering on the brink of bankruptcy. If it goes the way of Lehman Brothers, we will soon found out if the confidence that’s come back in the stock and credit markets is ephemeral and fleeting.

     

    Have we come far enough to let an important lender fail?

     

    A rebound in the economy is on the horizon. The Federal Reserve sees it, along with just about everyone else.

     

    And the credit markets -- by some standards -- are looking positively giddy. Junk and higher-quality corporate bonds have rallied sharply. Delinquency rates are improving on credit cards. American Express and Capital One both saw delinquency rates slip in June compared to May. In fact, both have seen improvements several months in a row.

     

    Nevertheless, hundreds of thousands of businesses -- from retailers to restaurants --would need to find credit elsewhere.

     

    Hopefully, CIT's troubles were so apparent that some creditworthy companies took the hint and found alternative bank financing at comparable or cheaper interest rates.

     

    According to a published report, research firm CreditSights thinks that a good chunk of its lending done to creditworthy customers could be taken over by another bank if CIT stops doing business.

     

    "Businesses won't necessarily lose access to credit, but they will have to pay more with loan standards tightening on all loans including commercial and industrial loans" says Chris Low, chief economist at FTN Financial.

     

    Now we wait.

     

    Will CIT sink? And does the economy have enough to buoyancy to stay afloat if it does?

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macro econ

On top of the huge added expense of the proposed health care package, and the increase in minimum wage, now a primary financial funder of small and medium businesses is being allowed to sink. This may end up causing a huge spike in many companies going belly-up with a comcommitant jump in unemployment. Seems like poor planning - and timing - by Washington.

July 20, 2009 at 12:35 am

Studio TV-15

CIT: A Test of Optimism - a wonderful title. Alas, our economic future and CIT's ability to muscle through is about as clear as Mississippi mud. Regardless of what the Fed and everyone else expects to happen as they view it today, there are two whopping pieces of legislation overshadowing us like big hairy spiders. If signed into law, they will have have a tectonic effect the likes of which we've never experienced. We will enter uncharted seas and July '09 economic expectations/predictions simply go up in smoke. If Cap and Trade and the Health Care bills are implemented, our lawmakers still won't stop spending. Emboldened by their successes, new costly legislation and pork will be concocted to drive us further and further and FURTHER into unsustainable debt (hey everybody, how about another stimulus!). Our balance sheets are already at record-breaking numbers and we've only just begun! As for CIT, in the eyes of those who could help, its dilemma is viewed as a minor collateral "necessity". The larger mission of corroding those old capitalistic practices is far more important. And if you ask the public at large their opinion of the CIT matter, they'd want to know what new texting acronym you're referring to. The American citizenry is in an irretrievable and uneducated slumber. There is no outrage at what is happening before them. We will only know CIT's and our combined true fate once Congress stops its unconscionable spending. Frankly, it scares me half to death.

July 16, 2009 at 2:20 pm

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