Goldman Sachs (GS) will either be scorned or praised for how it has handled the CIT case. It purchased insurance in the form of credit default swaps on CIT. In addition, it owns a make-whole agreement that was part of the $3 billion rescue package it put together for CIT in 2008, reports the Financial Times.

Now that CIT is teetering, these hedges are poised to payoff for the bank. The make-whole entitles the bank to $1 billion; it's unclear how much the CDSs will pay off. It's also unclear who has the other side of the trade. The problem is that it looks bad to be on the receiving end of these payouts while taxpayers are taking a bath. Recall the Treasury bought about $2.3 billion in preferred shares as part of a bailout deal. Equity holders are likely to get wiped out no matter what. Goldman Sachs is aware of the politics of it all and seems willing to reduce its make-whole payment.  

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