The problem of the big banks is becoming acute, as was made clear by Neil Barofsky in his excellent book Bailout: How Washington Abandoned Main Street While Rescuing Wall Street that I reviewed here. While having banks that are too big to jail makes a mockery of the legal system by inviting corruption, there is another reason that they are bad and that is because when some banks are perceived as too big to fail/jail, then they are being implicitly guaranteed by the US government, that it will step in and rescue them if they get in trouble. That means that people feel as safe lending money to them as they feel with buying US Treasury bonds and this carries with it real costs. [Read more…]