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CIT Following in the Footsteps of AIG

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Though CIT Group, a New York-based commercial lender, provides loans to only small and medium-sized businesses, it is still a major player in the lending game, a major player with some major financial troubles. And apparently, the government doesn’t think it’s big enough to qualify for a government-initiated rescue.

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Because of this, it is likely the troubled firm will file for bankruptcy tomorrow, taking away a key source of credit for thousands of U.

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S. firms. On top of that, it appears J.P. Morgan (which recently posted surprising earnings) has a stake in CIT, just as Goldman Sachs had a stake in AIG. Let’s just hope J.P. Morgan’s interest isn’t quite as big.

The Reuters blog puts it most eloquently:

The pairing of almost certain bankruptcy of the little guy lender with the blow-out earnings of Wall Street giants, JP Morgan and Goldman Sachs, makes a strong argument for smaller financial institutions to beef up their operations so they, too, can be too big to fail.

Trading in CIT was halted yesterday and it remains to be seen exactly how its almost-certain failure will affect J.P. Morgan and the rest of the market.

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CIT Group — big, but not big enough.

Insurers to Continue Practice of Rescissions

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Everyone who files for independent health insurance is required to fill out an application that lists all pre-existing medical conditions. But what if you fail to mention the fact that you have acne? Or a slightly enlarged blood vessel (which is so non-life-threatening that your doctor doesn’t even shutterstock_medical1mention it to you after a cat scan)?

Failure to mention these small, and seemingly unimportant, medical issues allows health insurers to rescind a policy — especially when a person needs it most.

A new report by congressional investigators states that the practice of policy rescission is common among insurers and saves them millions of dollars a year.

An investigation by the House Subcommittee on Oversight and Investigations showed that health insurers WellPoint Inc., UnitedHealth Group and Assurant Inc. canceled the coverage of more than 20,000 people, allowing the companies to avoid paying more than $300 million in medical claims over a five-year period.

Two cases highlighted at the hearing were that of Robin Beaton and Otto Raddatz. Beaton’s policy was reportedly rescinded a few days before her scheduled mastectomy because she failed to mention she had once visited a dermatologist because of acne. Raddatz’s policy was reportedly dropped when a pre-existing medical condition he was not aware of surfaced after he was diagnosed with lymphoma.

Rep. Bart Stupak (D-MI) was among the lawmakers who grilled health insurance company executives at a congressional hearing last week.

Late in the hearing, Stupak, the committee chairman, put the executives on the spot. Stupak asked each of them whether he would at least commit his company to immediately stop rescissions except where they could show “intentional fraud.”

Each answered “No.”

The outcome of the meeting put the option of a public health insurance plan in a very favorable light.

Proponents of a public plan seized upon the hearing, saying it showed why access to health care cannot be left to private insurance companies.

We will soon see whether a government-run, public health-care plan will serve the uninsured…and hopefully create a more fair world amongst the private insurers.