Tuesday, October 20, 2009

CIT versus Goldman Sachs

During the 2008 "Financial Crisis" the media reported the banking system needed to be saved because it was the cardiovascular system of the economy. I think it is interesting to see what is happening to two different banks:

CIT, makes loans to small businesses and many franchisees. They did receive TARP but is not really making loans anymore and is likely headed for bankruptcy. This is the cardiovascular system to small businesses. (BTW I think the country has enough Subway Sub shops, but these loans directly create jobs)

GS, trades stocks, promotes IPOs, and helps fund private equity companies. For example, a private equity company will buy an established company like Outback Steakhouse then try and sell it to another PE company or plan an IPO for a profit. These PE actions create a lot of profit for the banking class but do not create incremental jobs throughout the country (Outback already existed).

CIT got some funding but GS received over $20B directly and indirectly from the government.

If you are a realtor in the Hamptons GS certainly is the cardiovascular system, but if you own a strip mall in Missouri you need CIT. Based on this it is interesting to see which "necessity" received the most government support. Is it a surprise to see unemployment increasing when you review government actions?

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