Thursday, July 23, 2009

Wall Street Screws Over Small Businesses

Many business pundits have been lauding the fact that the private sector came up with $3 billion to bail out CIT so the government did not have to. As I understand it, the Wall Street bond firms that came up with the money got CIT to pledge all the assets it had left which consisted mostly of accounts receivable that were sold (or factored) to CIT by small businesses. That means that when CIT goes into bankruptcy, which still seems likely, those Wall Street bond firms will be ahead of the small businesses that are trying to get their accounts receivable back. If this is right (which is certainly debatable), the private sector bailout was just a scam to gain priority in bankruptcy and the small businesses who thought they were borrowing money from CIT will find that they were actually lending money to CIT.

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