Replies to post #3426 on CIT Group, Inc. New Common (CIT)

[Joe Stocks]

>>How did those shares get out to the public? Did they not have an public offering that "raised money" for the company or did that money just disappear after those shares sold? Is that not like a loan? <<

If you go to Best Buy and buy a TV you then own the TV. If you go to the stock market and buy a piece of BestBuy you then own the shares. In theory if the money you invested in your company is still sitting as money in the bank you still own part of it. Now to run the company all you buyers of the company, you shareholders, now vote to elect directors to oversee the operation of the company and to safe guard your investment. They in turn HIRE a Chief executive officer to be in charge of operations. All of this is nothing like loaning the company gave it to them as an investment, you gave it to the company and by doing so you now OWN part of that company.

At some point YOUR company may need to borrow money and go out looking for a loan. Remember, you elected a director that in turn hired someone for you company to do that. In the process of some making a loan to your company an agreement is made that you will pay them back. The collateral is company.

At some point your company (and mine, CIT, could not see themselves being able to comply with that loan agreement. Those lenders, the bondholders then have the right to force the company into bankruptcy to collect on their loan.

What happened to the equity that was there? Well, the directors you elected decided that the equity was not really there if they were forced to liquidate quickly. They would only receive "fire sale" prices for their assets. They thought it was best to keep the company whole and give it to the bondholders. Of course the only way they could do this legally was through the bankruptcy courts and YOUR company officials convinced a judge that this was the best alternative to settle the debt with the bondholders.

Personally I think the directors were to loose with my money. I don't agree with everything that was done. My point is basically to you the point that you did not loan the money to CIT. You exchanged that money for equity interest in CIT. The bondholders loaned money to CIT in exchange for an agreement basically saying that if you don't pay me I can take payment through bankruptcy proceedings.

If any one screwed us over it wasn't the bondholders. It was the directors we voted for and the bankruptcy judge that accepted their plan.