WHAT: The Treasury Department bought $2.3 billion in preferred shares of embattled commercial lender CIT to save it at the height of the financial crisis. Now CIT is in a last-ditch struggle to prevent bankruptcy by offering a debt exchange that would virtually wipe out stockholders — including U.S. taxpayers.
WHO WINS: Goldman Sachs would be owed at least $1 billion for a loan it made to CIT about five months before the bailout. The loan contract specifies that if CIT defaults or goes bankrupt, it is “required to pay a make-whole amount” of $1 billion, the Financial Times reported. Goldman Sachs also holds credit insurance that would be paid.
WHY IT’S A BAD IDEA: This would be the biggest taxpayer loss yet from the federal bank bailouts.