While many of the largest banks that have received help cater to all company sizes, CIT predominantly lends to small and midsize companies. Therefore, while a CIT collapse may not be catastrophic to the economy, but can severely impact many small and midsize companies across the country.

Having already received $2.3 billion under TARP with little to show for it, combined with the government’s unwillingness to include CIT in the additional assistance opportunities/programs, is a run on the bank inevitable? On the other hand, perhaps plans will come to fruition and the government will decide to provide further assistance to the troubled player. Time will tell, but with nearly $3 billion in debt maturing in the next several months, the amount of said time may not be very much at all.

CIT No More?

While supporters believe that this may actually help executives to make more prudent business decisions, I have to believe that it will more likely stifle creativity, and the healthy risks associated with the finance world. What this notion states, in plain English, is when an executive takes a chance, and makes a decision, if that decision turns out poorly for the company, not only can he be brought up on civil charges, but also on criminal charges, while an executive who makes a similar decision is unscathed since his decision luckily broke even. Executives should absolutely be liable for their decision, but through financial, not criminal (where criminal acts were never committed) means. Essentially it is a case of who is luckier – if two people take the same risk, one should not be a criminal simply because his company lost money – losing wealth is one thing, but he is certainly not a criminal for taking a risk.

I think that if we were to head down this path, it would result in far less risk-taking by sensible people, and the same, if not more, risk-taking by those reckless employees who would be taking big risks anyway (because to those few, making money is all that matters, and anything else including prison is inconsequential). It is one thing to tie bonuses and even claw back money (which, except in extreme cases seems a bit absurd to me as well), but it is entirely another thing to start a new class of criminals for these executives – if there is criminal action, then so be it, but simply making a bad decision (yes, even a very bad decision) is not grounds to label a person a criminal and lock him/her up.

Bankslaugter…Really?

In the grand scheme of things, 3, 4, 10 banks stopping their dividend payments out of 600 isn’t astronomical by any means (the three banks that stopped dividend payments would have paid a total of $16 million a year – so far the Treasury has collected about $4.5 billion in dividends). Nevertheless, it does say something for the government, considering these banks were essentially hand picked as the banks to save, rather than be allowed to fail or bought up. As one terribly insightful investor says, “it tells you of the deep problems of community and regional banks.”

Who really pays the government anyway?

GS and MS Double Down Finance Style

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Morgan Stanley, hoping to not be left out of the “in crowd,” those institutions allowed to pay back the government in this, round 1, has raised nearly $7 billion, well north of the $1.8 billion that they were required to raise as part of the stress test results. Considering, however, that MS has received $10 billion from the government, the jury is still out as to whether they too will join the “1st rounders” and be given their pass to freedom.

TARP, No Thank You!

Personally, I think it is a pretty silly idea. Once the government begins dictating how and how much to pay our executives, we are no longer competitive in the marketplace. It is absurd to think that people who have near zero concept of a banker’s or trader’s responsibilities will be the ones determining how much their (banker/trader) contributions and employment are worth to the company. Sure, the banks that received billions in aid should not be paying out billions in bonuses, that’s a no-brainer. But to have a Representative weigh in on how much to pay a trader who brought $250 million into the firm in 1 year, after that Representative was just reprimanded by his constituency for a low minimum wage is foolish. How can that representative adequately evaluate that trader’s merit, where would he/she find the time, and why would he/she want to – that is the job of the company’s management and its shareholders – I’m off on a nasty rant and I’ll end it there. Sorry for the run at the keyboard, but hey, it doesn’t just affect them, or me, it could also affect you, or at least will at some point if you’re reading this site and interested in the business.

Cap It All!

The FDIC, however, is not leading a united team of regulators, but rather, clashing with several regulators who do not feel that either of these moves is wise or in the best interest of the economy. Furthermore, several regulators believe that Ms. Bair has overstepped her boundaries and the boundaries of the FDIC. Considering the FDIC is helping to finance a $300 billion loss sharing agreement with Citi and is backing $40 billion worth of Citi paper, it is hard to justify the notion that the FDIC shouldn’t have a large say over just what Citi is doing and just who is managing the faltering giant.

The Citi That Should Sleep?

According to the committee on all these Dow Jones, BofA could very easily be next on the chopping block, and is already in the line of fire. BofA should definitely tread softly and pay back the government funding (or at least show progress towards that goal) as quickly as possible if it wants to keep playing with the Dow’s big boys (and girls, because let’s not gender discriminate here).

GM and C Out – BofA Next?

At the end of the day, it is pretty unlikely that Congress will jump up and down in excitement at the idea, but, that said, the plan (and this is just one part of it) will not be brought o Congress until about mid June, so that gives the Obama team some time to tweak and revise as necessary. I mean it’s not the worst thing that they could come up with, but honestly, do we really think it is going to make a resounding difference in the way business is conducted, or will it end up being a larger version of the same agencies that are already out there. Perhaps the real upside is that if the market collapses again, and banks are again to blame, we will have one prominent agency there to accept the blame, because, I mean honestly, who really likes a game of he said, she said and finger pointing anyway – this will be much cleaner. Then again, I could be wrong, the agency could be approved by Congress and start sweeping up the garbage and put the neighborhood on watch – we’ll just wait and see what Obama actually brings to Congress in a few weeks.

One Guard, Many Banks