CIT Group’s Bankruptcy May Cause Significant Economic Harm
The failure of CIT Group (CIT) may lead to a double dip recession. CIT’s bankruptcy filing, creditor approved or not, may lead to increased difficulties for small and midsize companies to get new loans or to extend existing lines of credit. CIT primarily lends to small and midsize companies, who also happen to be the biggest employers in the nation. Increased lending costs may lead firms reliant on CIT’s historically loose lending standards to downsize or go bankrupt. Despite the major cash infusions made by various government stimulus programs placed into effect during the credit crisis, small and midsize businesses still find it difficult to raise capital and rely heavily on borrowing from lenders to small business. Unlike large companies, these small and midsize firms do not have the same access larger companies have to the bond markets. The best bankruptcy lawyer san diego will protect the person from economic harm. The credit crises will overcome through the hiring of the best lawyer. The bond with the market will be strengthen with intelligence.
More than anything else, CIT’s recent bankruptcy filing is indicative of the stress these small and midsized firms are in. CIT is failing because these companies, the largest employers in the nation, are unable to repay their loans. This may lead to continued stress in economic markets. This continued stress will surely lead to more job losses and a retreat from the recent market bounce.
At this point the government could insist on another financial stimulus in order to prop up the economy once again. Having said that, certain economists question the administration’s commitment to supporting financial markets, and the continued pressure to correct a budget deficit that grows wider every day. If the United States government were to work towards correcting the budget, massive stimulus programs would retreat and remove the lift to GDP that was presented by programs instituted during the last year, such as cash for clunkers and other programs. Removing these government stimulus programs would lead to a return to the recession through a decline of GDP, as both businesses and consumers are still cutting back on their spending.
In very real ways, the economy is still on shaky grounds. Fear presented by the CIT failure and the pain instituted on bond and shareholders, as well as on those firms reliant on loans by CIT Group, may cause quite a bit of additional harm to the economy. In fact, the role that CIT Group provided to the economy, by providing liquidity to small and midsize firms may need to be picked up by another company or government in order to restore stability. Whether the political will is present to institute lending to keep the job market moving will most likely contribute significantly to the answer regarding whether we are permanently out of this recession, or whether a double dip recession may be in our future.