Taxpayer Dollars Still Bailing Out Banks

None of America's largest banks raise money on the free market. Every single one of them is propped up by an implicit taxpayer guarantee that is very similar to the backstops provided to Fannie Mae and Freddie Mac.

It is a huge subsidy by taxpayers to the banks, enabling them to be far more profitable than they would be otherise.

Tim Carney at the Washington Examiner (disclosure: we're brothers) explains:

Last week, the ratings agency announced a review of whether these bailout assumptions still apply after passage of the Dodd-Frank financial regulation bill. The Moody's review will be the truest test yet of President Obama's promise that the legislation—derided by Republicans as a bailout bill — can end the "Too Big To Fail" dynamic that has encouraged financial risk taking and given these banks an unfair advantage.

The implicit government guarantee these banks enjoy is a subsidy. The "five notches of uplift from government support assumptions" that Moody's gives to Bank of America translate into real profits for Bank of America. Without a presumed bailout, Bank of America's [BAC  10.87    -0.41  (-3.63%)   ] senior debt would be rated Baa3, just barely on the right side of the "Investment Grade"/"Speculative Grade" boundary. The presumed "government support" raises the bank's debt rating to A2, which is "very low credit risk."

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