As reported by Bloomberg here, CIT stands to be the first rescued bank (December 2008) that will now fail. This bank failure will cost U.S. taxpayers $2.33B.
The possible impact on the economy will be small businesses. They may go bankrupt because they are unable to draw line of credit to fund its daily business, even though they run a healthy business.
If CIT is allowed to fail, this marks the first quiet admission from the government that TARP is not a source for infinite funding. With Goldman Sachs and JP Morgan looking healthy these days, at least in the short-term, the financial sector won't collapse like everyone once thought it would and that the bigger will survive if not thrive.
My bearish call and concerns in option ARM (cheap mortgages that reset to higher rates) and commercial real estate debt still stands. Its concern may be ignored for now. After all, betting against the market when the tide against you is not a good idea.
