Who loses in the CIT bankruptcy? That’s easy: all of us taxpayers. And who triumphs? Private enterprise in the form of Carl Icahn.
Gary Weiss writes in Portfolio.com
So how was your weekend? I don’t know about you, but I woke up Monday morning poorer by $2.3 billion.
Not me personally, needless to say, but me as a metaphor for the U.S. taxpayer. I’m referring to the ultimate example of “throwing good money after bad”—the $2.3 billion bath that taxpayers are getting from the loss of every single penny of bailout money that was pumped late last year into CIT Group, the big commercial lender that filed for bankruptcy on Sunday. In the waning days of the Bush administration, the government decided that CIT Group, which funds thousands of small businesses around the country, was too big to fail. In went $2.3 billion from the Troubled Asset Relief Program, for which the Treasury received preferred stock.
Well, guess what? CIT filed for a Chapter 11 bankruptcy reorganization, and the world did not come to an end—except for the loss of that $2.3 billion. Private enterprise has, for the moment, triumphed. Veteran corporate raider Carl Icahn has extended a $1 billion credit line to fund CIT through December 31, as it limps through its prepackaged bankruptcy and extinguishes its debt and nulls-out its shareholders, including you and me. While the company is hardly in the pink, it should stagger on well enough so that retailers won’t be completely without financing in the months ahead.
There is a lot of popular resentment of TARP, which is Demon No. 1 on the radio talk-show circuit, and CIT’s bailout is an easy (and understandable) target. Critics of the bailout are already beginning to pounce on the $2.3 billion wipeout as a reason to attack the whole basis of the TARP program. And they have a point. This was a terrible use of taxpayer money. But what it really shows is not that the TARP program is fundamentally bad, but that the government was amazingly incompetent in structuring TARP deals and failed completely to protect the taxpayers in case of default.
Read more at: Portfolio.com