According to The Washington Post, 33 companies that received a portion of TARP's $700 billion have not paid the federal government their most recent dividend payments. Those payments are required by the terms of the bailout and signal that the firms are strained for cash, according to the Post.
If those companies fail, US taxpayers stand to lose billions.
The Post profiles CIT's failure and bankruptcy despite $2.3 billion in investments from the federal government, money that US taxpayers will likely never see (though Goldman Sachs, another CIT investor, stands to make $1 billion from the company's failure). CIT's bankruptcy filings listed $71 billion in assets and $64.6 billion in debt.
The Fed deemed CIT to be a bank holding company in December 2008, allowing CIT to borrow from TARP. The Fed argued that allowing CIT to borrow TARP funds would help the public because the lender would be free to loan more--except that never happened.
In the fiscal year ending on Sept. 30, CIT made just 142 loans backed by the Small Business Administration totaling $105 million. One year before, CIT lent 1,589 SBA loans totaling $873 million.
In July, Reuters reported that CIT's troubles raise questions about the Fed's supervision. Just weeks after the Fed's decision that allowed CIT to borrow TARP funds, the FDIC turned down a request to guarantee CIT debt. The FDIC was worried about "CIT's higher risk lending, escalating bad loans, and limited capacity for new lending."
Alan S. Blinder, the former Fed vice chairman under President Clinton, argues that the decision to bailout CIT was the weakest. Washington Post:
"Of all the financial companies that were rescued or semi-rescued, CIT was always the thinnest case, the toughest to defend," he said. "My attitude was: Hold your nose and go for it. It's something that I would rather not have seen the government do. . . . But the Fed and the Treasury and the others were in the unenviable position of being like the Dutch boy with the finger in the dike. And we definitely didn't want the dike to burst."
On the day that news broke about CIT's bankruptcy filing, The New York Times' Gretchen Morgenson wondered if CitiGroup, another bailed out institution, could "carry its own weight." In just 80 years, the federal government has bailed out CitiGroup four times. Citigroup has ominously been called "the queen of the zombie dance," by Chris Whalen, editor of the Institutional Risk Analyst. There are doubts that CitiGroup can survive, even after its most recent $45 billion federal bailout. Whalen in the Times:
"They are hoping that a combination of bank assistance and maximizing revenue and buying time will let them survive," he said. "When I look at the whole picture, Citigroup is in the process of resolution. I continue to believe the equity is worth zero and that the company will have to go to bondholders for some kind of money to make the bank stable."