One loser from a bankruptcy would be the U.S. Treasury. Late last year it injected $2.3 billion of funds from the Troubled Asset Relief Program to help stabilize the lender (CIT), which was weighed down by billions of dollars of bad student loans and subprime mortgages. The government investment is likely to be wiped out, said people familiar with the matter. Common shares would likely drop to zero, too, these people said.
I thought TARP funds were senior capital injections, i.e. collateralized investments. Add the $7 billion Chrysler write off and taxpayers are out $9.3 billion. Did Secretary Geithner include these losses in his calculation of TARP's impressive returns?
Guess who is next up for TARP aid? It's small businesses, CIT's lending target. Will CIT loan to financially sound small businesses, with Uncle Sam guaranteeing funds for small employers at risk? It could be another step in socializing losses, while privatizing gains.