Small-business lender CIT Group Inc. has filed for Chapter 11 bankruptcy in the fifth-largest corporate bankruptcy in U.S. history.

The beleaguered company, which had its roots in basic, no-frills loans to fast-food restaurants, clothing stores and the like, ran into trouble after a former Merrill Lynch executive took the helm in 2003 and pushed CIT into more exotic and risky investments that turned sour when the economy took a nosedive.

The part of the process that's most likely to upset average citizens is this: The terms of the bankruptcy filing wipe out CIT's obligation to pay back $2.3 billion it received from the government in December as part of the TARP program. The bailout was intended to get the company back on its feet, but things didn't go as planned and the lender was back roughly six months later, hat in hand again.



When CIT looked like it was heading for rough waters around mid-2009, CIT's leaders lobbied the FDIC to guarantee its debt. Wisely, the government saw the writing on the wall and brushed off those demands, determining that even if CIT did fail, its bankruptcy wouldn't threaten to topple the entire economy.

The FDIC is already in rough shape; agreeing to take on CIT's debt, in hindsight, would have been a very bad move.

In short, $2.3 billion might sound like a lot of money, but the damage could have been much greater if the government hadn't shut down the "bailout ATM" when it did.

Oh, and that high-flying exec who tried to turn CIT into a money machine in the vein of (also failed) Merrill Lynch? He'll be slinking out with his tail between his legs at the end of the year.