When the government offered direct bailouts to banks during the first half of this recession, many taxpayers and homeowner advocates doubted that the aid money would “trickle down” to ordinary Americans or even be repaid. CIT Group, which filed for Chapter 11 bankruptcy just a few months ago has become the first bank to materialize critics’ fears. The 101 year old commercial bank received a $2.3 billion taxpayer bailout; but its Chapter 11 bankruptcy wiped out its obligation to repay that money. And many analysts closely watching developments in the banking industry predict that taxpayers losses with CIT Group may be only one of potentially many to come.
The government’s $700 billion bailout fund could literally cost American taxpayers billions of dollars if other banking giants follow CIT Group’s Chapter 11 bankruptcy model. And what about the ordinary people that the bailout has failed to trickle down to? Remember, less than 2000 homeowners facing foreclosure have received permanent modification from mortgage lenders and small businesses are still facing difficulty finding financing from commercial lending giants such as CIT Group.
Both foreclosures and job losses remain extraordinarily high and many ordinary Americans are seeking the protection of bankruptcy as creditors become more relentless in the pursuit of payment. If the taxpayer money given to big bankers will be wiped out in bankruptcy, it may be wise of us to use the remainder of that money to directly help homeowners facing foreclosures , workers suffering a job loss and unemployed Americans struggling to make COBRA payments. After all, job losses, foreclosures and medical debt are the leading causes of personal bankruptcy.