That's a pretty bad comparison actually. They don't "have" them. It's just another place to sell your risk when you do a mortgage deal and then they repackage them and sell the end result to investors. It's necessary (or helpful rather) so that you don't have to have a balance sheet to hammer out CRE deals. You can just do the deal and sell the risk and not keep the interest rate risk on your books.

The Fed's balance sheet on the other hand, now that makes the student debt load seem miniscule.

How successful is the risk-selling in terms of getting the risk off the federal government, in practice? I can believe there's some level of success, so sure, 100% of the debt-repayment risk in securities managed by the federal government's mortgage entities shouldn't be counted as really being the federal government's. But the way the 2007-08 mortgage mess played out suggests that in an actual mortgage crisis (which is the only time the risk exposure would be seriously tested), the US government does quasi-officially backstop a large portion of the market in mortgage-backed securities that it manages, so it's shouldering more than 0% of the risk represented by those nominally repackaged-and-sold-off debt instruments.

Maybe the only way to quantify 'moral hazard' at the present time is to count the occurrences of 'Lehman Brothers' in the investment media.

Moral hazard is just a price you pay for stability. It's impossible to avoid. You need a middle ground where if you do something really stupid you're still punished but if you're "still dancing" like everyone else (Chuck Prince, 2007) then you aren't completely hosed. When I used to be a banker, I remember plenty of times where others would make bids on a deal that we couldn't come close to as a small player without a balance sheet. That's why things always get more aggressive in bull markets because you've gotta win deals to make money. It all ebbs and flows.

I don't see why financial organizations need a middle ground. It doesn't seem like our society (USA) wants to give individuals a middle ground so that they're not completely hosed, why should the rich have one?

Though I agree with you that bankers should face many many more personal repercussions to engaging in improper risk management, but stabilizing banks is not about bailing the rich. The financial system holds not only main street's deposits, but also future paychecks, loan re-payments, home mortgages and, well, basically anything to do with money. When that system stops working the world stops turning, so to speak. On a certain day in 2007 Ford Motors didn't know whether they would be able to make payroll the next day, because the inter-bank money market has completely dried up. That's what bailing banks is about. Though again I agree in principal - bank shareholders, executives and board members (or partners) should've paid a much much higher personal price during all this.

Very well said. Thanks for the anecdote