CIT Group Inc. (NYSE: CIT) won bank holding company status in December of 2008 so they could qualify for TARP money and then today announced their bankruptcy filing. CIT’s demise becomes the largest financial company failure since Lehman Brothers and the fifth largest bankruptcy in history.

CIT Group and Mortgage Crisis

CIT Group had a number of subprime and manufactured housing loans which I would call the “worst of the worst” when it comes to default rates.

They sought to sell their mortgage portfolio as early as August of 2007. They didn’t actually find any takers until July 2008. According to Reuters, CIT sold $9.3 Billion in subprime loans to Lone Star Fund and $470 million in manufactures home loan to Vanderbilt Mortgage and Finance.

They took a loss of $2.5 billion on the sales and closed their mortgage unit a month later.


But fear not…Uncle Sam is just a moment away from helping poor old CIT Group out…

CIT Group and TARP

Four months after closing their mortgage unit, CIT Group asks the Treasury Department to approve them for “bank holding company” status so they can dip their beak in the government trough called TARP…the Troubled Asset Relief Program.

Didn’t they just sell all of their “troubled assets” (re: bad mortgages) to other companies?

Sure they did, but that doesn’t stop a huge Wall Street firm from getting what it wants.

But I digress…

Once approved, TARP promptly invest $2.33 billion in CIT Group.

Hmm…didn’t they just lose $2.5 billion….

Boy those numbers look like they got all the money back from the Feds that they lost on the sale of their bad mortgages.

I”m sure it’s just a coincidence.

And now after receiving a huge bailout…they still file for bankruptcy.

CNN is reporting,

“Common shareholders, however, will be out of luck. CIT said all existing common and preferred stock will be cancelled upon emergence from bankruptcy protection. That would likely include preferred stock from the $2.3 billion in funding from the U.S. government’s Troubled Asset Relief Program (TARP) the company received in its efforts to stay afloat.”

I guess we should have expected this.

Give a big Wall Street firm an inch and they take a mile. And I saw Tim Geithner on “Meet the Press” today protesting how things won’t go back to “business as usual” with the “too big to fail” financial giants.


Good Luck!

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