Job Creating Businesses and CIT–Videos

Posted on July 18, 2009. Filed under: Blogroll, Communications, Economics, Employment, Fiscal Policy, government spending, Investments, Law, Links, Monetary Policy, People, Politics, Quotations, Rants, Raves, Regulations, Taxes, Video | Tags: , , , , , , , |

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“…U.S. officials ultimately decided CIT’s problems were too severe to be solved by any of the plans under review, said a Treasury spokeswoman. Government officials didn’t want to pump more money into the company because it didn’t seem to have a viable business plan, she said.

Whatever the eventual outcome, Treasury officials believe they will have lost their entire $2.3 billion investment in CIT, made last year under TARP, the spokeswoman said. That would be the first acknowledged loss of public money injected into financial companies.

The fate of CIT has posed a dilemma for the Obama administration and a test for its stance on bailouts. CIT is much smaller than other firms that received exceptional government assistance, such as Citigroup Inc. and American International Group Inc. Many Washington officials felt it was the type of company that should be allowed to fail. …”


CIT Bankruptcy Will Prolong, Deepen the Recession

By Keith Gerard

“…In its factoring business, CIT processed $8.3 billion in the first quarter of 2009, but the volume is down 21 percent from the same quarter a year earlier. Its dwindling business has led some to argue that the company is already among the walking dead. Bankruptcy, they say, could only help it by letting it reorganize.

But that would also leave tens of thousands of small businesses in the lurch. They would become creditors because CIT is holding their invoices as collateral for lines of credit. According to some estimates, a CIT bankruptcy could trigger a cascade of as many as 300,000 small business bankruptcies.

The situation led to a recent run on CIT that, in part, contributed to its liquidity crisis. Small businesses scrambled to draw down their credit lines ahead of a feared bankruptcy, pulling out more than $750 million this week alone, according to The Wall Street Journal.

If CIT fails, it’s unlikely to upset the financial system like the collapse of Citigroup or insurer American International Group. But there is no question that it will prolong and deepen the recession — just what we don’t need at a time when there is some hope that the economic downturn is slowing. …”


Retailers Fear Impact of a CIT Bankruptcy

Many Could Face Disruption in Flow Of Merchandise

By Ylan Q. Mui and David Cho

“…The potential bankruptcy of lending firm CIT Group threatens to disrupt the flow of merchandise between retailers and their vendors just as they are gearing up for the crucial holiday season.

Three prominent retail trade groups sent letters to financial regulators this week warning that the failure of CIT would rip a hole in the industry supply chain. Dunkin’ Donuts said the ability of its franchisors to open new stores or expand operations could be affected. And New York bankruptcy lawyer Jerry Reisman said he received more than two dozen calls from panicked stores and apparel manufacturers, some of which said they may not have the money to pay their employees today.

“They are unbelievably concerned right now,” Reisman said. “What we may have here is a total disruption in small business.”

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. …”



DEALWATCH: CIT Rescue Merits Hard Study

By Donna Childs 

“…CIT Group, Inc. (CIT), one of the largest lenders to US small businesses, is clearly in a distressed state. But a successful rescue requires a deep understanding of how commercial finance contracts work.

This is particularly pertinent to our regulators who, seemingly, have yet to grasp the gravity of the situation.

CIT is seeking assistance from the federal government on the grounds that its survival is key to financing the nation’s small businesses, which have been going through a credit drought. But small businesses are also creditors to CIT, so CIT’s failure represents a greater systemic threat than CIT’s management can admit. 

The consequences of CIT’s failure involves more than disruption of credit lines. It is a key player in factoring – the sale of accounts receivable. Typically, CIT advances 0 – 100% of the sums due against invoices. The remainder is an unsecured credit balance due to the small business from CIT.

Consider a small business that factors a $100,000 invoice payable net thirty days against which CIT advances 80%. The small business benefits from receiving $80,000 for near-immediate use. However, should CIT fail, the small business is an unsecured creditor with a claim of $20,000 against CIT. In affect, the small business has repo’d its collateral to a lender that may go out of business. ..”


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