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Jul 21

CIT is the canary in the coal mine

Posted by Ron F in SpendingrecessionObama AdministrationFinanceCapital

Ron F

CIT's struggles say more about the economy than the big banks' ability to hang on via the Fed's feeding tube, not to mention the stock market's return from the depths on happy talk from CNBC and the like.

Reason I say that is this piece points out that much of the business CIT does is factoring retailers' receivables. And as goes retailing, so goes the economy. After all, no other sector depends so much on consumer spending, and that spending represents 70% of GDP.

It's not as if Washington has turned a cold shoulder to the sector. Yes, it's refusing to bail out CIT. But the Federal Reserve has been pumping money into it, or at least trying to, via this lending facility.

Check out the handy-dandy table supplied in that release. It shows a big fat zero for so-called floor plan financing, which is another word for loans to retailers. That's right, the Fed's results there have produced absolutely zilch, a total goose egg, complete nada, for the industry most leveraged to the most important source of GDP.

Why is this? Bondholders aren't buying securities tied to those receivables, if in fact the banks are still trying to sell them. Instead the fixed-income folks are reportedly providing a lifeline to CIT at an exorbitant rate of 10.5%.

Some lifeline. With lenders supposed to borrow low and lend high to make money, those terms are more like a death sentence for CIT. And what does that say about investors' confidence in the finance sector?

My point isn't that taxpayers should do everything possible to save CIT. No, the point is that we're already trying to do that and it isn't working. And that suggests that it's long past time that the folks in Washington (not to mention CNBC) focused on Main Street rather than Wall.

It's called jobs, guys.







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