Century-old CIT Group Inc filed for bankruptcy in the Southern District Court of New York on Sunday.

According to the terms of the bankruptcy, bondholders will hold new CIT Group Inc. (NYSE: CIT) debt worth about 70% of the face value of the old debt. Preferred creditors, including the U.S. government, will get money only after other creditors are paid back. Common shareholders will receive nothing.

In December 2008, the U.S. government invested $2.33 billion dollars in CIT under the Troubled Asset Relief Program (TARP).

The banking crisis is getting more and more bizarre by the minute. The US Treasury has poured billions of dollars down a bottomless pit and is getting nowhere. Congress and the US Treasury are unwilling to face the fact that some of our big banks are insolvent.Wasting more taxpayer money is breach of their responsibility to the American people.

While General Motors (NYSE: GM) is busy rolling back its already-dour sales forecasts, its biggest creditors are forming a committee to negotiate with the company over a proposed debt-for-equity swap.

GM must cut its $27.5 billion debt load by two-thirds before February 17th as part of the $13.4 billion in government loans it received. The bondholders' committee is represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP and is acting on behalf of ten institutional holders of GM bonds. According (subscription required) to The Wall Street Journal, "Both sides could be in for tough talks. Even if the auto maker reaches a deal with the bondholders' committee, it will still have to persuade individual bondholders to sign off on it."

Here's what's so messed up about this: Last year GM tried to get bondholders to agree to a debt-for-equity swap, but they refused. Had the company been taken into a bankruptcy bondholders would have recovered very little. But rather than hold its feet to the fire, the federal government stepped in and handed GM a stack of cash to keep itself going.