The latest in the CIT saga. Recall that earlier this year American Express shut down two small business lending units. Citigroup has taken the axe to its credit cards across the board, but particularly at the credit limit levels that would be important to small business owners. These sources of funding aren’t just important (even critical) for specific small businesses. They are a fundamental part of the current business model used by many industries.

I like to single out clothing designers and manufacturers only because I was able to talk to some people in that industry. There are similar problems in any industry dominated by startups with quick turnover. These industries rely on credit because they don’t have another trust model. For such industries, this is Armageddon.

What is the inverse of decimation? I’m thinking of the aftermath where only one in ten survive. Some of the culling has already started. It will continue. Nobody is going to rush in to take CIT’s place simply because it isn’t profitable to do so. The big downfall won’t happen this holiday season. Everyone’s financing has already been secured or they have already perished. But expect to see a lot of consistency in Spring fashions. The designers simply won’t be in business any more.

One way of looking at this is that we simply have too many designers, but that’s not exactly true. The issue is the trust model. The link between manufacturers, designers, and retailers is based on credit (which derives from a word meaning “trust”). When the credit disappears, it becomes an issue of who pays for the manufacturing. Unfortunately, in the current business environment, it isn’t the manufacturer, the designer, or the retailer. Clothing design has high turnover, so it is unlikely to be the designer. Over time, it will likely be the manufacturer who extends credit to the designer, and the retailer will submit purchases up front (instead of paying for them with sales). If we could flip a switch, perhaps it would be economical to support many designers. The more accurate thing to say is that we have too many designers for the current business models in the current economic climate, but that’s rather lengthy.

If the holiday retail numbers are fantastic, Armageddon can be avoided. If everyone gets paid back this year (the defaults on CIT’s existing portfolio are few), someone will rush in to fill the void. There will be some fallout caused by the lag in the holiday numbers, but that would ideally only harm one season’s fashions.

I reiterate that this problem is not unique to clothing. Any industry with a similar financing structure is going to be on the chopping block.