GNCV: The Return Of Deal Or No Deal

It's been a while since we've played Deal or No Deal folks, but unfortunately (and completely expected if you've been paying attention at all) it's time for another major bank to step up to see which suitcase full of cash they'll get from you, the American Taxpayer.



Today's contestant, please welcome...CIT Group!

Troubled US business lender CIT Group is nearing a deal in its talks with federal regulators to obtain a government aid package, The Wall Street Journal reported.

The development came as corporate customers began to draw down on their credit lines Monday and Tuesday to the tune of several hundred million dollars, the Journal said, citing people familiar with the matter.

The cash-strapped company's board, it added, had discussed a number as high as 775 million dollars for the drawdowns.

Under the aid plan, regulators would allow CIT, which operates in more than 50 countries and provides financial services to small and middle market businesses, to transfer assets from its holding company to its bank in Utah.

The Federal Reserve would let CIT pledge some of the assets at its discount window, and the company would move to refinance some of its existing debt, the Journal said, noting the aid package had not been finalized and the possibility of a deal remained uncertain.

US government officials are split over the amount of aid that should be given to CIT and, according to some, CIT is seeking to exaggerate the consequences of its potential collapse, the newspaper said.

"There is also the risk that propping up CIT will reinforce the stigma that Washington will bail out companies that aren't even considered too big to fail," it added. The government saved insurance giant AIG from collapse in September, citing concern it was "too big to fail."

Standard & Poor's has lowered CIT credit ratings to CCC+/C, citing "increased near-term liquidity concerns."

S&P said CIT has more than one billion dollars of unsecured notes maturing in the third and fourth quarters, which could result in payments "that could become increasingly difficult to make."

Ahh...but it's not Hank Paulson asking bank CEOs to pick among the many trillions in those shiny suitcases this time, and George W. Bush calling the shots from the booth above as The Banker. The show's gotten a rewrite, kids!

Now it's Timmy Geithner handling the M.C. duties, stepping up from Hank Paulson's gofer last season...and The Banker? None other than Barack Obama himself (The Obanker?)

So here's the question: will Obama stick to the script and allow Timmy to give away billions to "save" CIT Group, or will he call for a last-minute rewrite? Obanker is in quite a spot. He remembers what happened the last time The Banker was talked into saying "No Deal!"... to a little company called Lehman Brothers. The resulting financial crisis nearly wiped out the playing field and did wipe out trillions upon trillions of dollars in global wealth. At this point it's not a question of if the American economy is badly wounded, but how many years...possibly decades...it will take to recover.

If it recovers at all. CIT Group would be the fourth largest bankruptcy in American history if it happened. Obama doesn't have a choice but to save it, right? CIT handles lending for nearly 100,000 retailers, big and small. If they went under, the business lending market would shatter, perhaps becoming a fatal blow the the economy. It's not quite the global systemic risk that Lehman was, but it's still significant...and our economy is in much worse shape than it was when Lehman went under.

Or does he? My argument is that CIT has to die. If it doesn't, it'll just be back several months down the road asking for more money. As a matter of fact, I expect a hell of a lot more contestants for Deal or No Deal to pop up over the next 12-18 months. Obanker's real problem is the rules of the game. At this point, there's no downside towards being a bad faith player. Moral hazard says you'll get bailed out if you only get your tentacles around enough Jenga pieces to bring the entire structure down. Make all the bad deals you want! CIT did, and it represents the third generation of Deal or No Deal players.

Bear Stearns was first (No Deal!), followed by Fannie and Freddie(Deal!). Then came Lehman Bros. opening up the second season of the game, getting a No Deal that spawned the entire industry getting Deals.

Now it's season three. CIT Group is the first contestant. It won't be the last. Will Obanker save it, extending moral hazard, or kill it and send out a warning that a new Banker is in town?

Given the history of the game and this Banker, it's only a matter of how much is in the suitcase.

Be prepared.