It is clear that, throughout the observable universe, most banks and many other highly leveraged financial institutions are deemed to large, too interconnected or too politically connected and sensitive to fail. Indeed, even financial corporations masquerading as units of non-financial corporations (GE and GM come to mind) may well fall into this category. One way or another, the tax payer is on the hook for the banks, the AIGs and GEs of this world.
Tax payer support can take many different forms: extension of deposit guarantees provided by the state on terms involving a subsidy from the tax payer (USA, UK, Ireland, Greece). Extensions of these guarantees to other categories of unsecured creditors and bond holders (UK, Ireland). Outright purchases of assets from the banks, at prices above their fair value (soon, without doubt, the USA through TARP). The acceptance of such assets as collateral in loans from the central bank, again at valuations in excess of their fair value (probably the euro area and the USA, possibly the UK). Governments have injected capital into ailing financial institutions, sometimes in exchange for ordinary or preference shares, with or without warrants (USA, Netherlands, Belgium, Luxembourg, France). Bans on short selling the equity of financial corporations (including such non-bank financial corporates as AIG and American Express and such financial institutions masquerading as non-financial corporations, including GE and GM) are another example of shareholder support for the financial sector, broadly defined. Other governments have promised unspecified support for the financial sector to ensure stability (Italy).
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