CIT Group files the latest big bankruptcy

There is considerable hype coming from Washington and Wall Street that the worst of the so-called recession is over, and recovery has begun. However, others dispute such views as a lot of wishful thinking.

Amidst reports in the last few days that unemployment is expected to continue to rise, another wave of home foreclosures is to be expected in 2010, the defaults on commercial property loans that began to appear in 2009 is just the tip of the iceberg, that government revenues at all levels have plummeted making another round of significant cuts to government services very likely in 2010 and that consumers are not spending resulting in bleak times for most retailers, today’s news of the fifth largest bankruptcy filing in U.S. History adds momentum to the doom and gloom scenario.

CIT Group, a 101 year old lender to small businesses, filed Chapter 11 bankruptcy Sunday evening. As reported in AOL’s Daily Finance newsletter, CIT’s bankruptcy filing is “the fifth largest in U.S. history, after Lehman Brothers, Washington Mutual, Worldcom and General Motors.” The AOL post provides this rather sobering overview – “CIT survived the Great Depression, but it couldn’t weather the Great Recession. Its demise may be a sign that the wave of crumbling, sub-prime mortgage-infected financial giants has not ceased.”

The company’s common stock holders are expected to find their stock is now worth nothing. Bond holders may get as much as 70% of their investment back – or put another way, bondholders stand to take a bath of 30% or more of their holdings. And the taxpayers have put $ 2.3 billion of bailout money into CIT to try to keep it afloat, and the likelihood of the taxpayers getting any of that that money back is very low.

2009 has been a dismal economic year, and it is not over yet. Once it is, then we have 2010 to face.

About Over But Not Out

A retired Orange County employee, and moderate Republican. The editor seriously does not know OBNO's identity as did not the former editor, but his point of view is obviously interesting and valued.