Taxpayers are, once again, the biggest losers in the CIT bankruptcy


CIT Group (NYSE: CIT) has filed for bankruptcy -- which will lead to the wipeout of the United States taxpayers' $2.3 billion "investment" in the company.

At least, it was billed as an investment at the time, which it was, in the same way that lending your crack junkie cousin beer money is an investment.

"The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy," Jeffrey M. Peek, CIT's Chairman and CEO, said in a statement. "This market-based solution allows CIT to enter into the reorganization process well-prepared and positioned for a swift emergence."
The company added that all common and preferred stock will be canceled -- which means taxpayers will get literally nothing -- working out to a loss of about $7.50 for every man, woman, and child in America.

But here's what is so messed up about this: The company's bondholders will likely receive 70 cents on the dollar for their debt.

So here's the question every taxpayer -- and every Congressman -- should be demanding of the Treasury Department: Why did we structure our infusion of funds into CIT in such a way that bondholders who invested before the company got into trouble will recover funds at the expense of the taxpayers?

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