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Bailouts Are for Bullies

Asked why the federal government refuses to bailout CIT, a major small-business lender on the brink of bankruptcy, a Treasury Department flack told MSNBC last week that “even during periods of financial stress, we believe that there is a very high threshold for exceptional government assistance to individual companies.”

That didn’t prevent perennial overachievers like Bank of America, American Express, AIG, Goldman Sachs, JPMorgan Chase, Morgan Stanley, GM, Bank of New York Mellon, U.S. Bancorp, Northern Trust — wait, there’s still more — State Street, BB&T, and Capital One Financial from collectively receiving hundreds of billions in taxpayer dollars last fall.

What gives? The Obama Administration keeps touting small business as the engine of private-sector job growth so crucial to the nation’s economic recovery. CIT — which received $2.3 billion in TARP funds in December — has a million clients with some $6 billion in credit lines, all for small and midsize businesses that are now tapping these funds for every penny. Maybe that’s peanuts compared to the $600 billion fall of the Lehman Brothers, which federal officials now openly regret not saving from bankruptcy — economists estimate the collapse cost the nation as many as two million jobs. That’s a lot of jobs, but nothing compared to the 120 million Americans who draw a paycheck from a small-business employer every year, according to the Small Business Administration. Many of these jobs hinge on the kind of access to capital CIT provides smaller employers nationwide.

A little spit and polish never hurts. Though hiring White House decorator Michael Smith for $800,000, as Thain did, might.

So what’s the real reason CIT is being denied a bailout? By process of elimination, Recessionwire has come up with the following list:

No style points: Unlike Merrill Lynch CEO John Thain, CIT CEO Jeff Peek hasn’t redecorated his office in years (not counting the firm’s move to swanky new digs a few years ago). What kind of impression does that convey to Treasury officials? A little spit and polish never hurts. Though hiring White House decorator Michael Smith for $800,000, as Thain did, might.

Betting dollars to donuts: Remember the primaries? President Obama has it out for NAFTA. Imagine the political ammunition he’ll get out of letting Dunkin’ Donuts, a longtime CIT client, be replaced by Canadian-based Tim Horton’s. First they take Manhattan—

Stop me before I sub-prime again: Before heading CIT, Jeff Peek worked his way through the executive suites at Merrill Lynch and Credit Suisse, two other banks that lost billions in bad mortgage investments. At CIT, Peek extended the strategy to bad student loans. TARP negotiations likely broke down over Peek’s strategy of investing in Mega Millions tickets and Off-Track Betting. Oopsy.

Problem solved, Liz: After CIT received $2.3 billion in federal bailout funds last fall, Peek’s wife unwisely penned an article for now defunct Portfolio magazine about the hardships of being a TARP wife.

Wait, the chart’s upside down: After eight straight money-losing quarters, CIT awarded 40 key executives million-dollar retention bonuses in January. “To sustain our performance, we need to retain our existing talent,” the bank said in a statement. Likewise, in this Bizarro World strategy, not bailing out the company is a sure way to save it.

Tags: bailout, banks, cit, financial crisis, obama