Barely any attention is being paid to the news that a company called CIT is in meetings with bondholders to avoid bankruptcy.
CIT is one of those company that few people know about, and yet it is extremely important to our economy. Why?
Know how the day after Thanksgiving is called Black Friday? The reason, as you probably know, is that on average, that’s the first day that retail stores turn a profit. All 11+ months before that, retail stores tend to run in the red.
So how do they stay open? If they are actually losing money for all but five weeks of the year, how do they pay their bills? How do they write paychecks to the surly, eye-rolling 20-year-old girls who chew gum while shouting over the loud pop music to see if you need anything? How can they afford to pay rent?
They borrow money from CIT. CIT, among its many services, basically floats loans to the shopping mall stores so they can pay their bills. On Black Friday, the stores start paying CIT back. In all, CIT makes money, the stores stay open, and you get your holiday shopping done.
CIT, like any major commercial lender, has found the present economy pretty bad. They are dangerously close to bankruptcy: if they go under, no more loans. Many retailers will be unable to pay their bills or their employees, and if they cannot secure a source of financing immediately thereafter, they go belly up too.
If CIT goes, you can bet that the unemployment rate will hit 10% or more as retailers dump staff as quickly as possible.