It has been teetering on the edge for a few months now, but yesterday CIT made it official when it filed for bankruptcy protection. The decision to file for bankruptcy was approved by the creditors of the company along with the board of directors. At the time of the filing CIT had assets of $71 billion and liabilities of $65 billion.

This filing is one of the largest. The only ones that have been larger are the bankruptcy filings from Lehman Brothers, General Motors, as well as Enron.

CEO Jeffrey M. Peek said in a prepared statement, “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.”

Just the lending sector was affected by the bankruptcy filing. The operating subsidiaries are not part of the filing and the company has every intention of keeping them running.

So, I suppose this means that we won’t be seeing the money that we lent to the company last year through the TARP funds. Last December, CIT took $2.3 billion from the funds; this will be the biggest loss the Treasury Department has had since it began handing out money to troubled banks.

CIT is a lender to mostly commercial businesses.

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If it is not bad enough that the Federal Reserve has almost unlimited control over money and interest rates and can totally control the market from an office building, the Obama administration is proposing that the Federal Reserve serve as a regulator to detect activities that could pose risks to the financial system and economy of America. So, the Federal Reserve is now the economy police. What does that make Ben Bernanke? Economy Police Commissioner?

A new plan is circulating among key lawmakers, under which the administration is recommending two new agencies, one to protect consumers and another aimed at protecting investors and maintaining the integrity of the markets. Wonderful; in a time of economic crisis, we want to expand government and spend more money. The FDIC would get expanded authority over troubled bank holding companies and a new government agency would conduct what insiders are calling “prudential regulation,” supervising government and private financial corporations.

This is only one part of six economic strategy recommendations designed to address weaknesses in the financial system that contributed to the current recession. Lawmakers and insiders say there is still much work to be done. Timothy Geithner (Security of the Treasury Department) and other administration officials have discussed this possibility in the past. It looks likely to be proposed to Congress soon, and it is just as likely to pass.

Directly from White House spokeswoman Jen Psaki, “The president is committed to signing a regulatory reform package by the end of the year and officials at the White House and the Treasury department are continuing work with Congress on the final phases of a proposal, but there is no final proposal in place and any announcement will not be for a couple of weeks.”

The agency to be raised to create consumer protection would focus on financial products but exclude securities. The investor protection agency could be an agency that merges the SEC and the Commodity Futures Trading Commission. By expanding the FDIC’s , the administration would hopefully allow the government to more effectively address failing banking institutions, or at least that is the plan.

Goldman Sachs and Morgan Stanley have formally asked the Federal Reserve for permission to repay their shares of $20 billion combined bailout funds out of the $700 billion made available last year to ailing financial corporations. Goldman Sachs, Morgan Stanley, and JPMorgan Chase & Co. have been in talks for weeks about formally applying to repay. The requests are pending, and in true government fashion, no decision has been made or implied, nor is there promise of an expedited agreement.

The companies are hoping to repay the received bailout funds in an attempt to sever ties with the entire bailout program (Troubled Asset Relief Program), allowing them to operate free of restrictions. All media sources spoke on a condition of anonymity due to the ongoing process of the requests. In a more formal note, the companies themselves have declined to comment to any media outlet. The Treasury Department has not even commented on whether or not they had received repayment proposals from either Goldman Sachs or Morgan Stanley.

Goldman Sachs, Morgan Stanley, and JPMorgan & Chase were among nine large financial firms that split the original $125 billion before we ever heard of the TARP as it is now known. If their requests are approved, these two corporations would be the first two of the original nine bailout recipients to repay bailout money. This would also be the first time a company returned more than $1 billion independently. Twelve smaller banks have returned a combined $1.2 billion. Of course, this is just a small step to independence from bailout funds as over 570 banks and countless corporations all across the board have received uncountable amounts.

The issue of paying back TARP funds is sensitive. On one hand, paying back TARP money would be a significant sign of strength. On the other hand, the government is afraid that it would put other banks at a disadvantage. They are also concerned that high level employees of TARP recipients could seek employment with banks that have already repaid the funds. Banks that repay bailout money must be able to replace it by raising capital not guaranteed by the FDIC. Government “stress tests” on the nation’s nineteen largest banks found that only nine had enough capital raised to survive after paying back the bailout money, two of which were Goldman Sachs and JPMorgan & Chase.

The Treasury Department has said it expects $25 billion of repayments in the next year. The Obama Administration has indicated that repayments will be used for new “injections” into banks.

Unwanted brands, factories and health care obligations are the departments that are likely on the chopping block.

Last week the GM CEO said that bankruptcy was avoidable for the company, however, it looks more and more like bankruptcy is the best and most likely option for the company.

This also comes just a day after Bernake said that the government would not allow big banks to fail. Also, the government has already taken a huge stake in both Freddie Mac and Fannie Mae since both companies hold the majority of United States mortgages, including those that have or are failing.

Both Freddie and Fannie (who asked for $15 billion just a few weeks ago) will get the money that they are asking for. The treasury department pledged $400 billion.

Freddie’s request for $30.8 billion in federal aid comes on top of $13.8 billion the McLean, Va.-based company received last year. Freddie Mac was forced to go back, hat-in-hand, because its net worth — the value of its assets minus the value of its liabilities — fell below zero.

The recent loss was driven by $13.2 billion in hedged trades, $7.2 billion in credit losses from the declining housing market conditions and $7.5 billion in writedowns of the value of its mortgage-backed securities. The company also took a charge of $8.3 billion for now-worthless tax credits.

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This index has almost been cut in half since its highs in October 2007.

Oil also fell today to below $38 a barrel. Oil is also way down from its July 2008 highs of nearly $150 a barrel.

This is another sad and depressing day on Wall Street.

“People left and right are throwing in the towel,” said Keith Springer, president of Capital Financial Advisory Services.

Investors pounded most financial stocks even as government agencies led by the Treasury Department said they would launch a revamped bank rescue program this week. The plan includes the option of increasing government ownership in financial institutions without having to pour more taxpayer money into them.

Although the government has said it doesn’t want to nationalize banks, many investors are clearly still concerned that this could be a possibility as banks continue to suffer severe losses because of the recession. They’re also worried that banks’ losses will keep escalating as the recession sends more borrowers into default.

“The biggest thing I see here is the incredible pessimism,” Springer said. “The government is doing a lousy job of alleviating fears.”

The trading session on Wall Street today was shadowed and hopefully things in the future will be better and we have seen the bottom of our economic slump.

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