Monday, July 20, 2009

CIT - Last Minute Reprieve

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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In a last minute development, commercial lender CIT has secured a $3 billion bailout from its bondholders thereby saving the company from filing for bankruptcy protection - at least for the moment. The rescue includes a $3 billion loan which is not due until 2.5 years from now. $2 billion is going to be committed immediately and another billion is to become available within 10 days. The bailout is supposedly taking place without government intervention (and the moon is made of green cheese). The media is trumpeting that this represents a new phase of the financial crisis and indicates how much things are improving. Don't believe it for a moment.

CIT is going to restructure its debt. Lenders are trying to get $825 for each $1000 worth of notes. There is a billion worth of senior notes alone. The company has established a steering committee of bondholders that will work on drawing up a number of debt swap offers designed to alleviate CIT's debt burden and further shore up the company's cash position. A question everyone should be asking is who are the people who are going to put the money up for this and what is their relationship with the Fed and U.S. Treasury.

Meanwhile a report is out that some of the biggest recipients of TARP bailout funds, including Bank of America and Morgan Stanley, increased their spending on lobbying in the second quarter as Congress began to look closely at revamping the rule system for financial institutions. Fortunately, members of congress aren't known to be for sale. Their votes are another story however.

NEXT: Bernanke Says Not to Worry - You Should Worry

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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