Stop bailing out Wall street bondholders. Middle market credit firms, like CIT, that depended upon asset securitiation to survive, no longer have a viable business model. The Treasury cannot restart these engines. All that is left is who pays for the burial - the bondholders or taxpayer.
Regarding CIT - it is already too late. Hand them to the FDIC and let the bondholders pay. This is another example of a Wall Street bail out that taxpayers find revolting and will cause the independents to turn on the administration.
The administration is currently considering whether to bail out another Wall Street firm - CIT. They are a failed middle market lender whose business model ended with the collapse of securitization. As they can no longer raise more money, they cannot lend it either. Do not be fooled - this company will not lend much ever again! It is very unlikely that that CIT can ever be put back together again. The only remianing issue is who pays for the bad loans they have made in the past - the bondholders or the taxpayer. The Wall Street lobby is hoping they can slip this by because we do not understand.
The GM liquidation and bankruptcy model was one of the greatest accomplishments of the Obama administration. The losses were assigned to the prior stakeholders including bondholders and a new company created out of the ashes. By scraping off prior liabilities the new company has a better chance of future success. They need to invent a similar process for handling bankrupt Wall Street firms. Currently the only option is to hand the company to the FDIC for revaluation and liquidation. While this option works, it could be improved.
The biggest mistake the Treasury and Geitner are making is institutionalizing the philosophy of too big to fail. The US government has bailed out bondholders for Merrill Lynch, Countrywide, AIG, FNMA, GMAC and GE Credit. This is really where the TARP money has gone - bondholders of failed firms. We need to develop a mechanism so that taxpayer does not pay the full bill, cram down the bondholders!
Regarding CIT - it is already too late. Hand them to the FDIC and let the bondholders pay. This is another example of a Wall Street bail out that taxpayers find revolting and will cause the independents to turn on the administration.
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As a veteran of 27 years in the securities industry, it is apparent to me that the financial industry needs reform. The same people that crashed the country into the financial iceberg have been left in charge to have another run at it. We need to reapply an updated version of Glass-Stiegel banking legislation so that no financial entity is too big to fail; we need to limit Wall Street leverage and margins levels to safe levels; require that all mortgage borrowers have a minimum down payment of 15% to 20%; provide consumer protection from abusive broker tactics and high commissions; and fully investigate why the SEC failed. Currently, the industry indirectly controls the regulators, not the consumer. These practices need to be changed.
We are watching a parade of special interest groups: bankers, insurance executives, auto companies, oilmen and more, parade through Washington and tell us how we should save them from their failures (bankers and auto) and guarantee them a profit (health care). The taxpayer gets to foot the bill. Enough already! I am concerned that lobbyists appear to run both political parties in Washington and the media.
The democrats will pay severely in the next election cycle if they do not deliver a viable solution to health care and securities industry reform.