Here's What Should Be Done With CIT

So CIT (CIT - commentary - Trade Now) hangs in the balance this morning. I find it amazing that it has lasted this long. Who was still lending this company money? Who has kept it alive? This critical juncture has been a long time coming. It's been a slow train wreck of a company, and keeping CIT alive at this point is really a kind of Japanese life-support thing to do.

Giving CIT money right now will amount to a government decision to preserve reckless lenders, not lending, because frankly CIT got out of its risky lending businesses -- mostly home equity but a lot of other subpar lending like student loans -- but the management at the top has stayed the same.

More on CIT's Crisis

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In fact, I can't believe that Jeffrey Peek, chairman and CEO, always mentioned as a fabulous banker from Merrill who turned CIT into a powerhouse, is still running the joint. I can't believe I haven't put him up on the Wall of Shame even though I have railed against this company and its constant financings for ages.

The truth is that CIT under Peek has been as bad as the MGIC (MTG - commentary - Trade Now), PMI (PMI - commentary - Trade Now), Radian (RDN - commentary - Trade Now), Ambac (ABK - commentary - Trade Now) walking wounded since that ne'er-do-well group started falling apart. There have been an astounding number of financings to keep this thing afloat, a tribute to Peek's real strength -- selling debt and common stock to the unsuspecting -- and each time the stock and bond deals have broken price almost immediately.

So how does it stay in business? Because it has a lot of clients that continue to pay on time and a great book of business than no one else has. Those clients -- small businesses, usually with loans backed up personally by the entrepreneurs (many against houses) -- do need financing and at this moment cannot be allowed to fail because of CIT's failure, not their own.

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