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."

CIT Group is one of the largest lenders to small- and medium-sized businesses in the U.S. But it has been plagued with financial troubles for nearly a year now. Last year the firm received $2.3 billion in federal bailout money. That helped them stave off bankruptcy for a while. Then this past July it received another $3 billion loan from some of its largest bondholders.

Apparently these stimulus packages are not enough to keep CIT Group Inc. (NYSE: CIT) afloat. The root of the problem is $30 billion dollars of outstanding debt. The latest maneuver would be to offer bondholders a stake in the company. This move would eliminate 40% of its outstanding debt, according to a Wall Street Journal report.

The key sticking point here is that by turning over control to bondholders, common shareholders would be wiped out. In addition, the $2.3 billion in federal stimulus money would go up in smoke.

As if there weren't sufficient causes already to refer to CIT Group (NYSE: CIT) as "beleaguered," the list just got longer. This morning, the financial services firm delayed filing its second-quarter report with the Securities and Exchange Commission (SEC), citing the ongoing restructuring of its debt as a mitigating factor.

Specifically, CIT told the regulatory agency that it could not meet Monday's 10-Q deadline "without unreasonable effort and expense," since executives have been spending most of their time lately attending to restructuring needs. The company is expecting a second-quarter loss in excess of $1.5 billion, thanks in large part to a loss totaling $2.1 billion from its discontinued home-lending operations.

CIT Group (NYSE: CIT) is recently trading at 55 cents in pre-open trading, above its close of 41 cents. CIT is in discussions with regulators on liquidity solutions. CIT August 1 straddle is priced at 90 cents, October 1 straddle is priced at $1.10, January 1 straddle is priced at $1.15 according to Track Data, suggesting large price movement.

ISE Sentiment Index (ISEE) closed at 137 on 7/16/09. ISEE 10-day moving average is 117.

August front month equity options expire on August 21.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

As each month passes, more and more companies get into the kind of trouble that pushes them toward Chapter 11 or insolvency. Some of the companies that hit that point several months ago include Sirius XM (NASDAQ: SIRI) and Charter Communications (NASDAQ: CHTR).

In the next several months two or three large companies could be added to the list.

Advanced Micros Devices (NYSE: AMD) posted a narrow loss last quarter compared with the same quarter a year ago, but a third of its revenue disappeared. If PC and server sales get worse, its sales could shrink faster than the company can cut costs. The firm's gross margins are dropping fast and AMD has long term debt of over $4.7 billion.

Citigroup (NYSE: C) still faces the prospects that it could be nationalized if it posts more huge losses in the first quarter. Last week, its market cap dropped to $17 billion. A massive capital investment from the Treasury could wipe that equity out.

General Motors (NYSE: GM) may seem like an obvious choice, but its shares could go to zero faster than investors think. If the UAW or creditors walk away from restructuring talks, GM's attempt to cut its costs to get more government assistance based on a plan to be submitted on March 31 would be ruined.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Everything is upside down these days. The folks with all the money and multi-million dollar bonuses are begging for a handout on the pretext that the economy will crash if they do not get one. We're not talking money for coffee or a snack, we're talking billions of dollars.

It is crashing anyway, or at least sinking. It is just a matter of what it takes down along the way. Apparently, the folks at the Treasury and Federal Reserve are now convinced that it will be everything.

The survivors are pawing at the defeated as Wells Fargo tries to grab Wachovia despite its previous tentative agreement with Citigroup Inc. (NYSE: C). While Citigroup gained a point in Wachovia deal over the weekend, the balance has since tilted in favor of Wells Fargo again.

Bank of America (NYSE: BAC) gobbled up Countrywide (done) and Merrill Lynch (NYSE: MER) (a work in progress), while JPMorgan Chase (NYSE: JPM) corralled Bear Stearns and Washington Mutual (NYSE: WM).

Sadly, only the federal government was big enough to swallow the problems of American International Group (NYSE: AIG), Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Otherwise,those in the know think world financial markets would have crumbled due to the collateral damage, (pun intended).

When I posted Congress is screwing up -- think backstop not bailout!, I was concerned with the psychological effect as much as the financial effect of not approving the funding, but no doubt the people suffering the most are not those who created the pain.

Dragged down by the challenging market conditions, many stocks have fallen under $10 lately. CNBC's Cindy Perman suggests that some of these stocks could be become good investments for traders. However, not everything that is cheap could be such a good bargain, Perman reminds us. You must always do your homework on potential investment before buying.

For example, Ford Motor (NYSE: F) fell down to around $6 compared with $38 nine years ago -- is it a good investment? Well, while the automaker revealed its plans to shift production from trucks to cars and give a boost to its turnaround plan, it also warned it won't be profitable until 2010 at the earliest.

Perman quotes several investment specialists on the matter. John Schloegel, vice president of investment strategies at Capital Cities Asset Management says, "An investment in Ford today feels like being in the wrong place at the wrong time." And Greg Womack, president of Womack Investment Advisers, advices to stay away from the sector, which doesn't look promising now, for the next three to five years to find out the "winner."

About a year ago, CIT Group Inc. (NYSE: CIT)'s shares were trading at about $61. Now, the stock price is at a lowly $8.33. In fact, in today's trading, the stock price is down about 28%.

CIT is a commercial finance company, handling such things as asset based loans, secured lines of credit, leveraged leases and so on. But with the credit crunch and the ailing economy, the business is under lots of pressure. Actually, Moody's Investors Service and Standard & Poor's downgraded CIT's debt.

The upshot: it's becoming tougher to manage short-term financings (within the commercial paper market). What's more, the credit-default swap market is much more expensive.

To deal with this, CIT has drawn down its $7.3 billion credit line. No doubt, this is a red flag. Also, the company is exploring the sale of assets.

In light of the Bear Stearns Cos. (NYSE: BSC) meltdown, investors are certainly not asking many questions. Instead, it seems the thing to do is just to dump stock.

There is some good news, though with the Dow holding up quite nicely. Perhaps it's a sign that markets are beginning to stabilize and getting out of the panic mode.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

CIT Group (NYSE: CIT), a commercial and consumer finance company, closed at $20.36 Wednesday.

Keefe, Bruyette and Woods says: "Adjusting Q108 estimate for likely student loan write-down."

CIT April option implied volatility of 89 is above its 26-week average of 62 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

TheStreet.com's Jim Cramer tells you he wants to own companies that make stuff that gets bought no matter what and that don't have outrageous raw costs.

We are holding by the strikes, so typical of expiration week. You get a floor on Intel (NASDAQ: INTC) (Cramer's Take) for certain, maybe catch a bounce. Obviously, people listened to Intel last night when it said PCs weren't a problem, but it traded at $42 last night and I fear that it could trade lower and would be trading lower if it weren't for the $45 tug.

I don't like the tape and feel that we are underestimating the CITs (NYSE: CIT) (Cramer's Take) and the Ambacs (NYSE: ABK) (Cramer's Take) and overestimating the power of a JPMorgan (NYSE: JPM) (Cramer's Take) or a Wells Fargo (NYSE: WFC) (Cramer's Take) to make a stand.

Here's what I am watching, though: Coke (NYSE: KO) (Cramer's Take), MO (NYSE: MO) (Cramer's Take) and the Drug Index, the DRG. As soon as everyone knows we are in a recession, then these will be bought again. I pick those because they have the least inflationary pressures. Allergan (NYSE: AGN) (Cramer's Take) holds up and Schering-Plough's (NYSE: SGP) (Cramer's Take) trying to bottom; good signs, again.

TheStreet.com's Jim Cramer says enough is enough when it comes to a company issuing stock just to cover its preferred dividends.

Someone of some responsibility has to say, "Enough."

I mean, how is it possible that CIT (NYSE: CIT) (Cramer's Take) is going to be able to issue common stock shares to pay preferred stock dividends and interest? But they will get away with it. After all, companies come public because they have too much debt and then use the common stock proceeds to pay down the debt.

So CIT will be "able" to do it. But here's a question: would you ever want to own the stock of a company that does that? How bad can it be there that they can't pay the dividends on recently issued paper?

Of course, though, the goal is to stay alive, to play for another day, because no one ever merges -- other than that pathetic deal that Bank of America (NYSE: BAC) (Cramer's Take) made because it had to and was on the hook. I call it pathetic because, ask yourself, if you didn't have any money "in" Countrywide (NYSE: CFC) (Cramer's Take) or had lent to them wouldn't you just want them to go under?

That's what this CIT move looks like. Desperation.

TheStreet.com's Jim Cramer explains why "purchased HELOC" is the next phrase to fear.

Purchased HELOC.

Get that term into your head. Home equity loans that were purchased from other originators are the scourge of the system. Any piece of paper backed by these second liens that were issued by pure mortgage originators is just a goner.

This is the paper that was generated by Fremont General (NYSE: FMT) (Cramer's Take) and NovaStar (NYSE: NFI) (Cramer's Take) and New Century Financial and American Home Mortgage and so many of the other bankrupt and walking-dead companies. It was mostly no-documentation loans paper and served as another way to tap money that was meant to be paid back when you flipped a home. It was predicated on the continued increase in value of your home.

Treasury Secretary Henry Paulson, who not too long ago was trying to minimize the impact of the subprime mortgage mess, finally realizes we've got a problem, but still will not really come clean on the severity of that problem. As fellow blogger Peter Cohan posted last week, the costs for the meltdown vary from $104 billion to $4 trillion. Bush I's savings and loan crisis ended up costing us $240 billion. I predict Bush II's mortgage mess will far exceed that with a lot more individual homeowners, investors, banks, and other lending institutions hard hit.

Paulson keeps holding out for a soft landing and by making statements like he did at a conference in New Delhi, India, today like, "We haven't hit the bottom yet in housing." or "There is enough strength in the economy that we can grow through this," all he does is delay the inevitable. It's time for straight talking about how deep this crisis truly is and how long it's going to take to get out of this mess. Then, quickly announce initiatives for starting the healing process that will lead us out of this mess.

We've already seen the fallout at the highest levels with major losses for Countrywide (NYSE: CFC), Merrill Lynch (NYSE: MER), UBS (NYSE: UBS), Citigroup (NYSE: C) -- just to name a few and the list is growing daily as financial institutions decide to own up to their mistakes. Millions of homeowners are losing their homes to foreclosure and we're likely to see those numbers continue to climb for the subprime homeowners through the end of 2008. Then another, even bigger group of prime loan holders will be hit in 2009 and 2010. These are the folks who took Option ARMs, who I wrote about last week.

You don't even have to have one of these risky mortgage loans to fear being hit by this mortgage mess, people with mutual funds and money market funds may be exposed and not even know it.

Are you or someone close to you caught up in this mess? What do you think should be done?

Lita Epstein has written more than 20 books including the "Complete Idiot's Guide to the Federal Reserve" and the "Complete Idiot's Guide to Improving Your Credit Score" (due out in December).

MOST NOTEWORTHY: American Eagle, CVS/Caremark, Office Depot, WPP Group and Pixelworks were today's noteworthy upgrades:

• American Eagle Outfitters Inc (NYSE: AEO) was upgraded to Outperform from Market Perform at Wachovia, as the firm believes momentum from a strong Spring/Summer can carry into the fall/Holiday seasons.
  
• JP Morgan views CVS/Caremark Corporation (NYSE: CVS) as the most sophisticated healthcare offering, the largest PBM, and has first mover advantage. The firm upgraded shares to Overweight from Neutral.
  
• JP Morgan also upgraded shares of Office Depot Inc (NYSE: ODP) to Overweight from Neutral based on valuation and potential turnaround.
  
• Morgan Stanley upgraded WPP Group (NASDAQ: WPPGY) to Overweight from Equal Weight as they believe the company can still meet its profit forecasts and margin goals in a slowing global economy.
  
• Jefferies upgraded shares of Pixelworks Inc (NASDAQ: PXLW) to Hold from Underperform on valuation as they no longer believe the risk/reward favors shorting at these levels.

OTHER UPGRADES:

• Stifel upgraded Tempur Pedic International (NYSE: TPX) to Buy from Hold.
  
• Merrill upgraded Tyco Electronics (NYSE: TEL) to Buy from Neutral.
  
• BB&T upgraded Celanese Corporation (NYSE: CE) to Buy from Hold.
  
• CIT Group Inc (NYSE: CIT) was upgraded to Outperform from Neutral at Credit Suisse.

It is not gargantuan good news, but it is a positive data point.

That's how one analyst characterized CIT Group's (NYSE: CIT) announcement that it plans to sell $3.5 billion-$4.2 billion in mortgage-backed securities to Freddie Mac (NYSE: FRE).

In general, analysts interpreted the deal as a positive for both CIT Group and investors: CIT Group, which is exiting the residential mortgage business, gets an infusion of capital, and investors can also rest somewhat easier knowing that CIT has succeeded in its overture access funds in the short-term credit markets.

CIT is retaining a considerable portion of the mortgage risk associated with deal. CIT's shares fell 85 cents to $41.04 in late Thursday afternoon trading.

Investment Category: Despite the positive announcement, CIT remains a moderate-risk stock not suitable for low-risk investors. Moderate-risk investors seeking a financial stock should consider waiting to see if CIT maintains a price above $42 in the weeks ahead, before buying shares.