CIT's bondholders gave it $3 billion to buy time for a workout, in which its creditors will receive equity for their debt, like the auto company bondholders did.  The government refused to bail out the business lender.  What did it do?  The government sometimes arranges private bailouts like an investment banker, by going out and finding buyers, as the FDIC does all the time when it exercises its resolution authority by separating a bank's good assets from its bad ones, and selling the good bank to someone else.  Sometimes the government demands a deal, as the NY Fed did in the case of Long Term Capital. 

And then sometimes there's a wink, a nod, and regulatory forbearance.  CIT still needs cash, and its eaiest access to cash would be to loot its Utah consumer bank subsidiary's deposits.  The problem is that if it did so, the bank would be insolvent, or at least undercapitalized, which doesn't matter to its customers, who have the FDIC guarantee, but does matter to the FDIC, which, like any insurer, wants to hold on to its dwindling funds.

Has there been any forbearance here?  It is here, especially in financial regulation, where the government does not always act particularly transparently.  Nonetheless, consider the WSJ:

Financial Crisis | Bookmark

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8345157d569e201157126b6f9970c

Links to weblogs that reference CIT Gets a Private Bailout: What Did The Government Do?: