CIT preparing to seek Chapter 11 bankruptcy protection as early as Sunday
Filing could wipe out U.S. stake and have broad ripple effect
By Tomoeh Murakami Tse
Washington Post Staff Writer
Saturday, October 31, 2009
NEW YORK — CIT Group, a major lender to small businesses, is preparing to file for Chapter 11 bankruptcy protection as early as this weekend, sources familiar with the matter said Friday, which would likely wipe out the federal government’s $2.3 billion stake in the company.
A CIT bankruptcy filing would be one of the largest in U.S. history, with potentially broad ripple effects. The firm provides loans to about 1 million companies, including many already struggling in the economic downturn.
. . . Under the pre-packaged bankruptcy, CIT bondholders would recover 70 cents on the dollar in new notes and equity in the reorganized company. But documents filed with the Securities and Exchange Commission show that preferred shareholders — including the U.S. government — would get nothing.
The documents state that the government could recover some value if new securities in the reorganized company trade at a high enough level, although that is unlikely, a source with knowledge of the matter said.
. . . CIT has said it envisions a quick restructuring in bankruptcy that will result in a better-capitalized firm. The company has said that neither its bank nor its operating units would be part of the bankruptcy filing, which would allow the company to keep servicing its small-business customers during the proceedings.
A re-organization under Chapter 11 has to be approved by the court. And, it seems you and I, with the active participation of our Fed, have been slipped the smelly package of sucking up our $2.3 billion dollar investment. The Fed kicked that over pretty quickly, in an environment where the only thing standing between American citizens and decent health-care is a third of what was given in tax relief to these same rich bankruptcy supplicants.
Interesting also, that CIT’s bank, Goldman Sachs, and the now cleaned up and shiny operating units are not included in the default. That ought to help the stock price of the newly emerged company and save the bonuses that always follow.
And so, the stage is set once again for private profit at the cost of the public hauling out the ashes. At least, when my old daddy made me haul the ashes all the way to the alley, I’d been warmed by the fire that created them.
We have a new category of ashes these days. It’s called financially equitable America and it’s burned beyond recognition.
To be fair, other free and democratic countries do this as well and have for decades. Norway, Sweden, Denmark, France and Germany come to mind to varying degrees. Pretty nice places to live. They are home to such terrible burdens as Mercedes, Nokia, IKEA and other wonderfully run companies, whose CEOs are neither billionaires nor opportunists.
But they are branded ontheir foreheads with the term socialism, a hot-button compound word, hauled out at every neocon opportunity and occasion, from health-care to financial control, shaken in our faces like a puppy-soiled rag.
In America we bottle our milk differently than those nasty old socialists. We privatize the cream and socialize the skim and sour-milk, calling it by acronym. TARP, as an example, is either the Troubled Asset Relief Program (one can but wonder whose assets are troubled) or an old canvas pulled over garbage to quiet the stink.
Now that’s a puppy-soiled rag.