But such an implicit guarantee created moral hazard: heads the bank wins, tails the taxpayer loses.
For years, Fannie and Freddie operated as two separate entities with an implicit guarantee from the government.
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To a lot of people, it seemed like there was an implicit guarantee from the U.S. government.
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This implicit guarantee is slightly less airtight than the pledge on Treasurys, but the difference is probably academic.
And bringing the implicit guarantee of other sovereigns to bear against the risk of redenomination would create new problems.
Assume that America's top five investment banks would pay two percentage points more on unsecured borrowings without an implicit guarantee.
There are two possible responses to it: regulate banks to try to make them safer, and attempt to limit the implicit guarantee.
They've long enjoyed an implicit guarantee on their debt from the government.
Critics say the implicit guarantee of government backing that many investors believe comes attached to corporate debt enables inefficient companies to thrive by borrowing money at cheap rates.
Even where they have not, depositors often assume that there is an implicit guarantee, because the government will step in rather than risk a collapse of the whole system.
The reforms would also create a deposit-insurance scheme: at the moment only deposits at Sberbank, the country's biggest bank, enjoy an implicit guarantee, because it is owned by the state.
On April 7th Subir Gokarn, a deputy governor of the central bank, suggested ending the implicit guarantee that states have from the centre, so that the profligate would face higher interest rates.
These two entities achieved their monstrous size and malignant and distorting influence precisely because they had the implicit guarantee of Uncle Sam and were exempt even from normal, basic reporting requirements to the SEC.
Without Fannie and Freddie's implicit guarantee of government support (which turned out to be all too real), would the mortgage-backed securities market and the subprime part of it have expanded the way they did?
By identifying these firms, the government could create an implicit guarantee that it will rush to the rescue of an ailing company, as it has done in the past year with Fannie Mae, Freddie Mac, Citigroup, American International Group, General Motors and others.
Credit card companies offer another solution to the problem: They generally allow buyers to disavow charges for goods that were never delivered, and they are in a position to reduce losses from that implicit guarantee by refusing to remit funds to merchants with too many outstanding gripes from consumers.
The banks have been able to make these kinds of profits largely for reasons which have to do with government intervention which saved them in the first place, government intervention which eased up credit conditions, which provided effectively very, very low interest money to them and an implicit guarantee.
"For many decades, banks enjoyed an implicit government guarantee, " said Harald Benink, professor of banking and finance at Tilburg University.
And, in taking on Fannie and Freddie, they were belatedly making explicit the implicit government guarantee that the twins had long enjoyed in the eyes of investors.
Yet the one thing that can be said about Goldman is that if its employees are making hay partly on the back of an implicit public guarantee, so are shareholders.
These groups were also fooled into believing that the huge financial benefits accrued from the implicit government guarantee enjoyed by Fannie Mae and Freddie Mac, its smaller sibling, flowed mostly to their borrowers, not to their managers and shareholders.
Depending on how you look at it, the fact that Fannie and Freddie have such a big share of the market and carry an implicit government guarantee is either a big cause for concern or the only way in which the peculiarities of America's mortgage market can operate with relative safety.
The other, cleaner, approach would be to privatise them, so that the markets are left in no doubt that their debt carries no government guarantee, implicit or explicit.
No market risk and the implicit (or even explicit) state guarantee: Pay a fixed amount now, and when Junior goes to a state college, his tuition is covered.
The government guarantee was, after all, no more than implicit.
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