In this past Sunday’s New York Times, Gretchen Morgenson wrote an article entitled: “The cost of saving these whales”. She would like to find a way to get rid of banks that are “too big to fail”.

In her article she cited a study by the Center for Economic and Policy Research that attempts to measure the implicit subsidies provided to the banks that received government assistance. The study estimates a maximum value for the “taxpayer subsidy” for the 18 large bank holding companies in the U.S. at $34 billion a year. But the researchers understand that the assistance provided was just one of several variables which might have impacted their findings. Consequently, the provide what appears to be a lower bound estimate of $6 billion, a large number, but trivial in a government budget exceeding $1 trillion, and an economy with a GDP in excess of $16 trillion.

Even this lower bound estimate is questionable since there are many variables which affect the cost of funds spread between these 18 bank holding companies and all other banks. It is possible that a more exhaustive empirical analysis might find that the big banks did not receive any implicit subsidy.

This is an interesting study which begins the debate. But it is definitely not the last word on this subject.

Now I return to Gretchen and her anathema to big banks. She makes two serious mistakes in her article. Unlike the authors of the study she cites, she does not appreciate the difficulty in isolating the effects of government assistance on the cost of funds spread. Thus she reports a number, which is likely to take on a life of its own, without care and/or knowledge of its accuracy.

Second, like many critics of the government’s efforts to prop up the financial system, she doesn’t appreciate the critical importance of network industries. There are four key network industries that are fundamental for any economy to function. They are the finance, transportation, telecommunications and energy transmission industries. Imagine an economy in which any one of these four does not function.

Bailing out GM was about specific jobs. Propping up the finance industry was about saving the economy. There is a major difference. This also tells us that these four industries should be subject to special rules to ensure that they do not freeze up, and government must have in place contingency plans to keep these industries functioning when massive failures are imminent.

Bailing out Wall Street saved Main Street! Bailing out Detroit ensured that Michigan would remain in the Democrat’s column in the 2010 and 2012 elections.