Monday, November 2, 2009

CIT Files For Bankruptcy - It's PPT Time

It was bound to happen.
The government bailout of CIT just couldn't keep it together.
And with commercial real estate in crisis... well it really was bound to happen - and this comes on the heels of 9 more bank closures.
I wonder how MSNBC and other Obama media will spin this to somehow show more "green shoots".

From Zerohedge's post:
For more than 100 years, CIT has provided much needed capital to small business and middle market customers. These two sectors play a vital role in the U.S. economy and in overall employment and job creation, representing more than 90 million employees. CIT is the leading provider of financing to the retail sector and to women-, minority- and veteran-owned small businesses. Over one million customers depend on CIT to provide the financing needed to run their businesses. In addition to being one of the largest independent leasing companies in the U.S., CIT maintains the following leadership positions among others:

* #1 factoring company in the U.S.;
* 3rd largest railcar lessor in the U.S.; and
* 3rd largest aircraft lessor in the world.

This Yahoo report says:
The Chapter 11 filing is one of the biggest in U.S. corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors. CIT's bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion.

A prepackaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT's debt and could allow it to exit court protection by the end of the year. In addition to reducing its debt, CIT said the plan cuts cash needs over the next three years, which should help it return to profitability more quickly....

CIT's move will wipe out current holders of its common and preferred stock. That means the U.S. government will likely lose the $2.3 billion it sunk into CIT last year in return for preferred shares to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.
US Taxpayers gave this behemoth that was "too big to fail" a whopping $2.3 Billion and still it tanked.

But wait - a commenter on Zerohedge's website by the name of RobotTrader says this is the game plan for Monday Nov 2 and beyond:

Step 1: Futures down

Step 2: Investors "flee" into dollars and bonds

Step 3: 10-yr. yield plunges to 3.1% again, while the dollar rallies with a vengeance

Step 4: Turbo Timmy floats off $300 billion, of course its 400% oversubscribed

Step 5: Government creates another alphabet soup program to mop up CIT's bad loans

Step 6: Mop up completed, financed with near zero cost financing

Step 7: Goldman floats new IPO for CIT, billions are raised, Goldman scraps in huge dealmaking fees

How easy is that?

Yup.. that is what's most likely in the play book - then of course if the market tanks we also certainly see the PPT in action.. oh right, surely you recall the PPT:
Plunge Protection Team also known as the President's Working Group on financial markets which operates via Executive Order 12631 (signed by Reagan on March 18, 1988). The PPT name came from an article in the Washington Post in 1997.

For further edification on the issue please read these two pieces:

"Goldman Sachs and the Code of Gold"

"Effecting Success: Coordination On Cross-Cutting Issues" which says: The PWG is a forum for the coordination of Federal financial regulation across markets. It brings together the leaders of the Federal financial regulatory agencies, including the Secretary of the Treasury, who chairs the group, and the chairs of the Federal Reserve Board, the CFTC, and the SEC. In addition to the four primary financial regulators, regular staff meetings of the PWG also include staff members from the National Economic Council (NEC), the Council of Economic Advisors, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Bank of New York, and the Office of Thrift Supervision (OTS).
They basically manipulate the market during a "crisis".

And do you remember Ron Paul and his question about PPT during the presidential debates? (Clearly McCain was clueless)

Well, all I can say is this week should be a very interesting week in the world of finance and the economy.

You might want to check this out too - 1929 and today - sobering parallels - because the parallels are truly sobering.