Yet throughout the Obama administration, we've see bailouts become even more entrenched. A recent credit ratings update on big banks and an inspector general report on Freddie Mac show that Too Big to Fail is thriving.
Moody's credit rating agency last week downgraded Bank of America, Citigroup and Wells Fargo, judging that if any of these banks failed, the probability of a federal bailout "is lower than it was during the financial crisis." Good news, right? But then there was this passage: "Moody's continues to see the probability of support for highly interconnected, systemically important institutions in the United States to be very high. ..."
In other words, a bailout has gone from certain to only very likely. Regarding Citigroup, Moody's wrote, "The holding company's long-term senior debt ratings now incorporate two notches of uplift due to systemic support, down from three notches previously." Translated: Citi's big lenders are still charging lower interest rates because they're still counting on a taxpayer bailout if Citi falters. Citi, then, is still profiting from a presumptive bailout. Moody's judgment was similar for Bank of America and Wells Fargo.
Moody's says a bailout is slightly less likely today because the banks are not seen as being as interdependent, thus government officials might see a big bank's failure as acceptable. Curbing bank interconnectedness was one of the goals of the 2010 Dodd-Frank financial regulation bill, and Moody's seems to think this is having an effect.
But Dodd-Frank's more important bailout guard was "resolution authority" that was supposed to provide a way for governments to dissolve failed banks while avoiding both bailouts and negative ripple effects. There's little reason to believe the law does this. Moody's writes "it would be very difficult for the U.S. government to utilize the orderly liquidation authority to resolve a systemically important bank without a disruption of the marketplace and the broader economy."
The actual consequences of a big bank failure, though, aren't what matters. What matters is what White House, Congress and the Federal Reserve think the effects will be. That's where these banks' unmatched access to power is crucial. Their armies of revolving-door lobbyists will once again be pretty helpful at convincing the powerful to push the bailout button.
Citigroup, for instance, last week hired former Fed director Nathan Sheets. He joins Obama's first budget director, Peter Orszag, who is already at Citi. Former Obama Treasury aide Damon Munchus, now a lobbyist on K Street, represents Citi, as well. Meanwhile, the Obama Treasury Department aide who administered the last bailout of Citigroup, Jim Millstein, has just started his own financial consultancy.
Goldman Sachs has Obama's old White House counsel, Greg Craig. UBS picked up Obama's former deputy White House chief of staff, Mona Sutphen. Obama administration alumnus Oscar Ramirez represents Bank of America at the Podesta Group (a lobbying firm co-founded by Obama's transition director John Podesta).
The big banks have plenty of friends from Capitol Hill, too -- namely some of the authors of Dodd-Frank. Both Dodd's and Frank's chief counsels now work for the banks their bill was supposed to curb. Senate Majority Leader Harry Reid's old chief of staff, Jimmy Ryan, is a Citigroup lobbyist. Two of House Speaker John Boehner's former aides, Sam Geduldig and Jay Cranford, represent the American Bankers Association.
It's not as if big banks seeking bailouts would meet firm opposition in this administration, either. Obama showed his fondness for bailouts when he reappointed the captain of the 2008 bailout, Fed Chairman Ben Bernanke, and promoted its mastermind, Tim Geithner, from the New York Fed to Treasury -- fighting hard for Geithner's nomination while letting other troubled nominees drop out.
Obama has been creative in implementing Troubled Assets Relief Program, and even found other means to bail out banks.
This week, we got insight into one back-door Obama bank bailout when the inspector general at the Federal Housing Finance Agency issued a report bashing the settlement that government-owned Freddie Mac offered to Bank of America. B of A had misled Freddie Mac on mortgages the bank sold the GSE. Freddie had the right to force B of A to buy back 787,000 bad mortgages, worth $130 billion but settled instead for a paltry $1.3 billion settlement.
"Too big to fail," it seems, is too connected to die.
Timothy P.Carney, The Examiner's senior political columnist, can be contacted at email@example.com. His column appears Monday and Thursday, and his stories and blog posts appear on ExaminerPolitics.com.