Blow to Mom and Pop shops across America

For some reason I feel this whole story is really being underplayed. Is it that we have had enough depressing bank bail-out news and not much phases us any longer?

Digging deeper in to the fate of CIT Group, Inc., one of the largest lenders to U.S. small businesses, the heart of the economy of the US, by the way, we see greater negative impact then news clips reveal.

So Goldman’s employees raking in the cash (indirectly from the US bail-out and US taxpayer) and small-bizz lender allowed to go under. Wow.

“Alone, Rick Rush is small enough to fail. The problem is he probably wouldn't go down alone.

Mr. Rush owns a light industrial company called MetFin in Suffield, Conn. MetFin makes abrasive blast cleaning equipment used for metal fabrication. MetFin doesn't borrow from CIT Group Inc., it borrows from a rival. When cash flow is tight, Mr. Rush draws on his credit line to keep the bills paid and meet payroll.”
“Worries about the fate of CIT Group Inc. cascaded through the retail and manufacturing industries on Thursday, as companies stopped shipments and businesses worried about cash being tied up at the lender should it file for bankruptcy-court protection.”

A Tale of Two Bailouts
Goldman's profits, CIT's trouble, and 'too big to fail.'

“Goldman will surely deny that its risk-taking is subsidized by the taxpayer -- but then so did Fannie Mae and Freddie Mac, right up to the bitter end.”

“We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business. Ideally we would shed those implicit guarantees altogether, along with the very notion of too big to fail.”

http://online.wsj.com/article/SB124762129423442667.html

The System at Risk in a CIT Failure
Small Business Collateral At Risk With CIT

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

The failure of CIT would have catastrophic consequences for small businesses globally, making regulatory intervention unavoidable.

Therein lies the Catch-22: if CIT fails, there could be systemic risks as small businesses file for bankruptcy and cannot pay their obligations to their suppliers and employees. To forestall failure by asking government assistance may require that CIT explain the total risk exposure.

According to CreditSights, the total exposure of CIT client trade and vendor finance balances, which include those of small business clients, exceeds $6 billion.’

Source: The Wall Street Journal, July 17, 2009
http://online.wsj.com/article/SB124779123756354885.html
http://online.wsj.com/article/SB124774724987851145.html
http://online.wsj.com/article/SB124757917744938883.html

saverio manzo