Government Helped CIT Limp Along Long Enough To Keep From Ruining Christmas

According to SpendMatters, one big reason the government burned through $2.3 billion in TARP funds for CIT even though it was buckling under debt was to try to avoid ruining everybody’s Christmas this year.

Jason Busch at SpendMatters writes,

…had CIT originally filed for bankruptcy earlier this year — around the time the US government bailed them out — it could have had a disastrous effect on the retail supply chain for the holiday season. But fortunately, the original delay — which we can thank the Feds for — allowed “both buyers and suppliers in the retail sector to get their shipments in and get paid,” Kurt notes, in time for the holiday season.

That doesn’t make the bankruptcy “good,” since there could still be problems for stores. The Associated Press points out that this means retailers are going to have problems in early 2010 trying to get inventory, noting that “about 60 percent of the apparel industry depends on CIT for financing,” and that retailers “still need a reliable source of lending to prevent shipping disruptions and to restock after the holidays.” But it does mean that retailers were able to prepare for the shopping season without having to worry about how to get merchandise on the shelves.

“What Will CIT’s Bankruptcy Mean for the Retail Supply Chain? (Part 2)” [SpendMatters]
“Retail faces uncertainty as CIT enters bankruptcy” [Associated Press]
(Photo: Paul Keleher)

Comments

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  1. bohemian says:

    So maybe this will force retailers to stop churning out season after season of ugly disposable quality clothes?

    I am assuming this means lots of stores will be closing instead. Does anyone know if they fund large sectors of retail people actually need like food stores?

  2. wvFrugan says:

    I do believe that CIT is the provider of Dell Financial Services (DFS). Let’s stop paying those bills to get our bailout back (which now won’t be repaid).

  3. kexline says:

    Maybe if clothing retailers have less money they’ll be more selective in their offerings.

    Ha. Hahaha. Ha.

  4. Blueskylaw says:

    I think it would have been a good thing for CIT to fail early, if only for the reason that we tend to associate
    Christmas/holidays with spending money and buying material stuff than with what the holidays are really supposed to be about.

    My most stress free Christmas was 4 years ago in Europe where Christmas creep and television commercials blasting holiday sales was so low as to be almost a religious experience in itself.

  5. stopshopping says:

    “What Would Jesus Buy” is now the ultimate holiday movie, and quite prophetic since it filmed and aired long before this shopocalypse actually went down…

  6. LJKelley says:

    @dohtem: I noticed one thing the Wikipedia Article and most US Media has not reported on is that CIT owns CIT Bank in Utah that does Bill Me Later as well financing agreements such as NewEgg Prefered. So its just not business financing, there is also quite a large amount of consumer financing that allows people to buy on credit.

  7. H3ion says:

    @PsiCop: Because no one else wants the title. Retail financing is hairy in good times. Many of the borrowers are small to medium sized businesses and those are the riskiest, especially startups. CIT did factoring of receivables and provided inventory based loans to these borrowers when a traditional bank would not. Some competition would be great but I don’t see who would fill that role. Maybe a new division of B of A (lol).

  8. yasth says:

    @PsiCop: Because too big to fail means too big for competitors to grow into. It isn’t that CIT doesn’t have competitors, just that they can’t grow fast enough. Though they are desperately trying.

    Besdies while CIT may be bankrupt that doesn’t mean they are pulling out of the market. There will still be loans next year.

  9. ogsoleysol says:

    @FDCPAGuy: Nice try, but yes. [www.businesswire.com]

  10. wvFrugan says:

    @nstonep:
    Thank you comrade, and a good Cultural Revolution to you!

  11. bohemian says:

    @wvFrugan: If they are fully closing their doors and not reorganizing doesn’t everyone who they owed money to just lose out? There may be some merit in not sending in a payment to a company that no longer exists.

  12. wrjohnston91283 says:

    @bohemian:

    It’s a prepackage BK – they hope to be out and back up and running by year end, as a new company.

  13. ARP says:

    @bohemian: No, those receivables are an asset to liquidate like any other.

  14. Scuba Steve says:

    @LJKelley: Ugh.. Bill Me Later is such a horrible concept. Worse than store credit cards.

  15. What The Geek says:

    @bohemian:
    President: “Things look bleak for you, but you’re too big to fail. Here, have a bag of money.”

    Banks: “Sweet!! Too big to fail means we can do whatever we want, and when things get tough the government will give us a bag of money!!”

  16. Excited_Utterance says:

    @MooseOfReason: This is a fun game! Which “the bailouts” are you talking about? The 1966 credit crunch when the Fed intervened as the lender of last resort? The LBO bailouts of the 1980s? The S&L bailouts of the 1990s?

    I am concerned that there is an idea floating around that (I assume) the 700Bn TARP bailout is somehow the only/first bailout.

    The whole point of the Fed is to intervene as the lender of last resort, which it failed to do in the early 1930s, and indeed, the only reason we have avoided another depression in this country is as follows:

    1. After the euphoric ramp up of the economy the bubble pops
    2. This, left alone, causes a debt-deflationary spiral
    3. The Fed intervenes as the lender of last resort and injects massive amounts of capital so companies can meet their payment obligations (the US is an economy of finance after all)
    4. Inflation
    5. Eurphoric ramp up
    6. Goto 1

    So yes, being too big to fail does indeed entitle that entity to a big bag of money, and yes, bailouts (all of them!) cause inflation. The thinking goes, however, that some inflation now is much better than a debt-deflationary spiral, which is the real cause of a depression.