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On Sunday Afternoon CIT Group (NYSE:CIT) finally filed for Chapter 11 Bankruptcy Protection. If you have been keeping up with previous posts on this blog then you know that this is the beginning of the next economic shoe to drop on the World Economy. This is estimated to be the fourth-largest bankruptcy filing in U.S history ranking just behind General Motors and ahead of Enron.

CIT Group Inc. (CIT) is the holding company for CIT bank and provides commercial financing and leasing products, and management advisory services to small and middle market companies worldwide. The company holds roughly $71 billion in assets and $65 Billion in liabilities according to the NY-Times. The nightmare the company was experiencing this weekend was the fact that $800 million worth of bonds was maturing from Sunday through Tuesday.

According to Jeffrey M. Peek, Chairman and CEO of CIT Group, "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."

This is still a slap in the face to US Tax payers however. Last year CIT received $2.3 billion in government aid in the form of preferred stock. Now, this will most likely be wiped out through the bankruptcy proceedings and will become the first definitive loss in the governments rescue of the financial system says the NY-times.

Despite the size of this bankruptcy, the U.S Government would not provide further support for the company. Earlier this year CIT asked the government for further aid, but was not deemed too big to fail so now they must fail.

CIT has approved a pre-packaged bankruptcy filing, which is supposed to be better than a regular bankruptcy according to the company. This still sounds like a hard pill to swallow. Bond holders are expected to receive 70 cents on the dollar, but this still seems very speculative at the moment. I guess those bond holders are not ordained as important as some of the major investors tha4t recently provided another $4.5 billion loan or Goldman Sachs (NYSE:GS) that recently provided another 2.13 billion loan, as I am sure there will be preferential treatment.

Before the financial Crisis, CIT was one of the largest nonbank lenders in the world, and was considered a big part of the “shadow banking system” that collapsed when the financial crisis erupted last fall. CIT was hit hard as the economy contracted and unemployment surged. As a result, a huge percent of the company’s loans went bad and CIT was forced to report billions of dollars in losses.

The problem I still see here is that commercial vacancies are still up and of the new leases being signed, much lower rates are being accepted. This obviously leads to less capital to service the debts of so many more businesses going forward. So Bankruptcy or no Bankruptcy, this is only the tip of the iceberg.

Get ready to weather another storm as more businesses fail since the U.S Consumer is not spending like the good old days.

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