Move along. Nothing to see here. That appears to be the view of the Obama administration as it allows CIT Group Inc. to desperately look for other financing, or slide quietly into bankruptcy, possibly as early as today.

This is not Lehman Bros. Part 2, and besides, another bailout is a political nonstarter, go the assumptions. The damage, even to those businesses that rely on CIT for regular infusions of cash, will manage, according to much of the financial punditocracy. And isn't the administration planning to pump billions more dollars into small-business loans anyway?

Lloyd Chapman, president of the Petaluma-based American Small Business League, is not so cheery. "I fear an avalanche of bankruptcies," which may hit California hard because of the concentration of retail and import clothing businesses in the state tied to CIT, Chapman said. As to the supposed ease of replacement, many of the loans are long-term credit lines given to business owners "that had been turned down repeatedly by other lenders." The Obama administration, he added, is going to have come up with a "much bigger pot of money" than is currently on offer to replace what businesses will lose with CIT's disappearance.

Noting that Goldman Sachs Group Inc., which reported boffo quarterly profits this week, benefited from a Federal Deposit Insurance Corp. program guaranteeing newly issued debt that was denied to CIT, Chapman added, "I'm not predicting it, but I wouldn't be surprised if Goldman Sachs somehow benefits from this."

Ripple effect?: Matthew Anderson isn't especially sanguine about CIT's bankruptcy, either. "Credit quality is still a big issue. I don't see how CIT's failure helps the situation," said Anderson, a partner at Foresight Analytics, an Oakland research firm.

Anderson and his colleagues recently analyzed CIT's $75.6 billion worth of loans at the request of the Wall Street Journal. They found CIT's delinquency rate - spread across commercial, industrial and consumer, including student loans - close to double that of other lending banks. Unlike those other banks, CIT doesn't have depositors, its operations relying exclusively on financing from the debt market, which began shutting down for CIT earlier this year, Anderson explained. That was one of the whammies hitting CIT at the same time as more of their borrowers were defaulting. Getting shut out by the Obama administration makes three.

Anderson believes that a CIT bankruptcy will be disruptive to many of its borrowers, especially those already experiencing liquidity problems. He agrees that CIT is not central to the financial markets as was Lehman Bros., but is concerned about other banks' potential exposure to CIT, and the impact a Chapter 11 will have on the company's bond holders, and the bond market in general.

"I hope regulators are at least looking hard at the situation, and figuring how to help out without appearing to bail out CIT," Anderson said.

"It's a delicate political balance. And a financial one."

Twittering at twitter.com/andrewsross. Tips, feedback: E-mail bottomline@sfchronicle.com.

This article appeared on page C - 1 of the San Francisco Chronicle

Source:  http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/07/16/BU7118P6PQ.DTL