Why CIT Group's bankruptcy doesn't matter


I would like to congratulate the Obama administration for drawing the right line in the sand. Unlike the Bush administration, Obama did not permit a $639 billion bankruptcy -- Lehman Brothers -- whose collapse nearly caused social chaos as people lost confidence in their money market funds. With today's CIT Group (CIT) bankruptcy filing, the U.S. will lose $2.3 billion in TARP money, but with $71 billion in assets, CIT will keep operating and global panic will not follow.

As I posted previously, CIT Group makes loans to about a million small businesses like Dunkin' Brands franchises. Those businesses need capital to operate and they can't get it very easily by accessing public debt and equity markets. So lenders like CIT Group really matter to them. But the company got distracted by subprime mortgages and student loans and it is likely to scale back to its core business of lending to small and medium sized business.