Economic Outlook: Long view from Paris

U.S. retailers were scrambling Friday to process news U.S regulators deemed CIT Group too wobbly to help.

"What we may have here is a total disruption in small business," said New York bankruptcy lawyer Jerry Reisman, alluding to the possibility of a failure at CIT, which was left with its own scrambling to do as the Treasury Department and the Federal Deposit Insurance Corp. refused to extend the lender additional bailout funds.

CIT, a New York lender for the manufacturing economy, is critical to the operation of thousands of small businesses, analysts said. Critically, the bank makes loans to retail suppliers based on IOUs given to suppliers by retailers trying to keep their shelves full. If CIT goes under, the disruption could mean retailers relying on CIT could be unable to finance payrolls as early as this week, The Washington Post reported Friday.

Getting ready to place orders for the Christmas shopping season, many retailers could be left high and dry if the bank, which turned to bondholders for help, declares bankruptcy.

"They're basically the bank for the way we do business," said Ken Burke, chief executive officer of the American Apparel and Footwear Association where more than half of its members have with some association with CIT.

"At any point there where the money stops, then the movement of that product stops as well," Burke said.

And then there's the possibility that taxpayers may be asked to bite the bullet on the $2.33 billion loaned to CIT in December should bondholders fail to make deals that can salvage the company.

In contrast to the grim news in New York, Treasury Secretary Timothy Geithner in Paris told reporters the financial markets were showing some "very important signs of recovery and repair."

A portion of Geithner's remarks clearly were based on earnings reports from JPMorgan Chase and Goldman Sachs, which reported profits of $2.7 billion and $3.4 billion, respectively, for the second quarter, the Times said.

"One theme here is that Goldman Sachs and JPMorgan really have emerged as the winners, as the last of the survivors," Robert Reich, a professor at the University of California, Berkeley, told The New York Times.

But uncertainty is far from over. Fifty-three U.S. banks have failed this year and two giants, Citigroup and Bank of America, remain in trouble. In addition, JPMorgan set aside $30 billion to shore up its ailing credit card and home loan divisions, the Times said.

Recovery is welcome, but still fragile, analysts say. "Nobody is through this until unemployment turns around," said banking analyst Moshe Orenbuch at Credit Suisse.

In Japan Friday, the Nikkei 225 average perked up 0.55 percent. The Hang Seng index in Hong Kong rose 2.42 percent. The Singapore Straits Times rose 1.25 percent, while the S&P/ASX index rose 0.13 percent.

In midday trading in Europe, the FTSE 100 in London rose 0.71 percent, while the DAX 30 in Frankfurt gained 0.81 percent. The CAC 30 in Paris gained 0.78 percent, while the broader DJStoxx 600 rose 0.31 percent.