CIT crisis threatens wave of business failures and layoffs

(10 am. – promoted by ek hornbeck)

Original article, by Barry Grey, via World Socialist Web Site:

The Obama administration has refused to provide government backing for outstanding debt or other emergency aid to CIT, a New York-based bank that finances nearly one million small and midsize companies in the US.

Another big bank in trouble? Gosh, and the green shoots reading says the economy’s back from the brink! Yeah, right!

The collapse of CIT’s efforts to secure government relief on Wednesday has left the 101-year-old bank teetering on the edge of bankruptcy and threatens a cut-off of funding to retailers and suppliers. That could result in a wave of bankruptcies and closures, leading to tens of thousands of layoffs.

In general, I’m for letting the banks fail: After all, isn’t that what’s supposed to happen in a capitalist system when a company f’s up? As long as we’re playing by the capitalists’ rules, those rules should be followed through. Of course, we’ve found that those rules don’t apply to the super banks.

Here’s the kicker with CIT:

As the country’s largest factor, CIT buys the receivables of thousands of manufacturers and suppliers, mainly to retail businesses. For a fee, it pays its clients cash up front, so they do not have to wait 30 to 90 days for retailers to pay for their supplies and inventory. It also guarantees suppliers that they will be paid even if retailers whom they supply go bankrupt.

CIT controls 60 percent of the US market for factors. It is a factor for some 2,000 manufacturers and suppliers whose goods are sold at 300,000 retailers across the country.

Both suppliers and retailers fear that a CIT bankruptcy will disrupt the flow of cash and credit, disrupting supply chains and leaving businesses unable to pay their bills.

Ah…CIT goes splat, so does the petit bourgeois.

CIT, which has an $80 billion balance sheet, has had eight straight quarters of losses, totaling $3 billion. Beginning in 2004, when its current CEO, Jeffrey Peek, took control, the bank plunged into subprime mortgages and student loans. The impact of the subprime collapse and resulting credit crunch has had a particularly crippling effect on CIT, which does not take deposits but rather relies on short-term commercial credit to finance its long-term debt.

So this is of CIT’s making….

An administration spokesman said the decision to deny CIT emergency support demonstrated that Obama has “a very high standard” as to which firms can receive government assistance. More to the point, it demonstrates the degree to which the administration’s economic policies are dictated by the biggest Wall Street players.

Ah. A very high standard. IE, you have to be too big to fail. Well, that or you have to have some of your former executives running administration’s economic efforts.

I’ll let you read the rest of the article. Grey points out that the administration is telling us this is another phase. You’ll get to decide this on your own, and we may get to see the super banks get ever larger.

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