Op-ed: The real lesson of CIT

July 16, 2009 by · Leave a Comment
Filed under: Opinion 

Ms. Crane does gives CIT a good shellacking on her piece on the Reuters Blogs.  I do agree that they should of been addressing this in 2007 when it was clear things were becoming much worse.  There share has gone to almost zero, I assume that it will be pulled tomorrow and a filing for bankruptcy coming at any moment.  What I want to know is what is going to happen to all the businesses that relied on this type of finance to assist them with their operations?  Who is going to step up to fill the gap?  Is CIT just another bad institution that will not be missed and other prudent lenders will make those loans or, will we see even more demand for credit than is available?  Will this help trigger the next wave down that will push more layoffs and increase U.S. home foreclosures.

Opinion (Agnes T. Crane – Reuters Blogs):

Sometimes a failed lender is just a failed lender.

The relatively small size of CIT Group is a big reason the middle-market lender is headed to the wood chopper as soon as Friday. But the lender’s decision to move aggressively into the world of risky lending and not regroup when troubles in the credit markets first emerged is a classic case of bad decision-making and bad timing striking the mortal blow.

Indeed, one should resist the temptation to draw broader conclusions from a CIT bankruptcy in a world where the government is saving some banks and leaving others to languish.

CIT is no stranger to skirting the edge of trouble. In 2002, it had a near-death experience when problems at its scandal-plagued parent Tyco International cost it access to essential short-term financing. Tapping a credit line averted disaster then.

That lesson seemed to have been lost on Jeffrey Peek, a former Wall Street investment banker. He joined the company just a year later, becoming CEO in 2004. Peek then led the once-under-the-radar lender into the world of subprime loans, student lending and leveraged buyouts at a time when such ventures were hailed as the Promised Land for companies and executives with big ambitions.

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