Conservatives don't like the financial reform bill that was passed during the financial crisis. They claim that banks that are too big to fail receive a subsidy because they are not a default risk. Therefore, they can borrow money at a lower rate than smaller banks. Liberals don't like Dood-Frank because they don't believe that it does enough to reduce systemic risk in the banking system, and TBTF banks should have to pay for the subsidy that they receive. It turns out they are both wrong. Two different statistical methods are used to demonstrate that TBTF banks do not receive an implicit subsidy from the government.
That result is interesting but I was more interested in one of the implications of this analysis. It raises a question about who really owns a corporation. The common view is that shareholders are the owners of our major corporations. It turns out that creditors have an equal claim on corporate ownership. They just use credit default swaps to transfer the risk of default on their claims to third parties.
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