Felix Salmon criticizes the Gretchen Morgenson piece on Dean Baker and Too Big to Fail, writing that the dollars talked about are benefits to the banks, not direct costs to the government.

My reading of Morgenson and Baker is that they’re talking about implicit indirect subsidies ultimately paid for by taxpayers not year by year, but on the back end of a cycle. And I don’t see the exercise as a literal this-is-what-it-costs-the-government thing, but more to show how many billions ginormous banks get a year because taxpayers will bail out their lenders if and when they screw up.

Those implicit subsidies are actual monetary benefits enjoyed by TBTF banks due to a sort of catastrophic insurance policy that the government is providing (and even if it’s not explicit, it is providing it). When the TBTF banks get in trouble, which presumably they’ll be more likely to do given the moral hazard caused by the taxpayer backstop, bondholders keep all their hair, so to speak, and the actual bill for the implicit subsidy is finally handed to taxpayers.

It may take a few years or a couple of decades, but that bill will keep coming, all right, as long as there are mega-TBTF institutions, and especially as long as those institutions aren’t forced to keep higher capital reserves, face strict regulatory oversight and/or pay some sort of levy that would effectively shift to them the cost of insuring against their demise. The higher capital-ratio thing is in the works, at least, as Salmon points out.

In my post, I called these “ongoing costs,” which isn’t quite right. It’s not like the government pays out $6.3 to $34.1 billion for TBTF every year.

Instead, it comes all at once.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.