CIT still has problems

Posted by Ray on August 11, 2009 under Main | Be the First to Comment

It is very convenient to just assume all of the problems that plague the US economy have just disappeared. With all of this talk about the recession easing or ending, as some commentators contend, it is tough to take an objective look at what is going on around us. There is some hope that the recession is ending, I even fall in that camp, but I am more grounded and expect it to last until year end, however there is a higher possibility that CIT Group may still be filing for bankruptcy protection.

Many have assumed that this problem has been fixed, but it has not. The firm recently delayed its quarterly filing and new rumors are forming about a potential bankruptcy in the very near future. Even though the firm has received money from its bondholders it was not enough to make the problems disappear and it is suffering from, as the WSJ put it, a severe liquidity problem.

If CIT fails it, combined with 72 bank failures, a massive increase in personal bankruptcy and pick any other issue of the minute, is evidence of the continuing credit problems that plague or economy. These issues are not exactly systemic risks individually, but combined it is a direct indication of the problems we face. Of course, a great productivity report this morning is sure to make people feel better, even though the report just shows we are squeezing more out of less people.

Our troubles have simply been postponed or buried to a future date and it is my opinion that government intervention is going to prolong our problems, not fix them. No one ever wants to hear, hi, I am from the government and I am here to help, because the government only makes things worse. However, we are closer to the end than we are to the beginning of this thing and we will come out of it, but it is important to recognize the problems that are still there so you do not get sucked in to believing everything is OK right now.