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We've been hearing a lot lately about banks who are "too big to fail" and if you're like most Americans it's making you more than a little nervous. Too big to fail brings on the connotation of needing a "bailout" or that if failure should happen, the world would be turned on its ear. Well, now they're applying too big to fail status to a new market, cars. GM and Ford are being listed as too big to fail and what that could mean to the market has yet to be determined. Many are not sure that they will even reach that point but since people are losing their homes and falling behind in payments they are finding that buying a new car is starting to slip beyond their reach.

Amid concerns about access to credit, low consumer confidence and precarious cash positions, the debt ratings of the U.S. carmakers have slid deep into junk range. GM, once AAA rated, is now a B-, and Ford is slightly above it at B. On Thursday, Standard & Poor's said it would consider further downgrading GM. And this week, industry forecasters said U.S. car sales would be down 20% this year compared with 2007.

It's a grim financial picture, but talk of the companies' filing for bankruptcy protection has been surprisingly muted. Financial and industry experts are speculating that the automotive giants may simply be too integral to the economy to go under.

"For GM and Ford to fail, some pretty catastrophic things have to happen," said Brett Hoselton, equity analyst at KeyBanc Capital Markets. "Then again, things are pretty bad now."

Beyond just selling cars, the Michigan automakers have a huge financial reach, representing millions of jobs in the supplier, sales and aftermarket sector; they each have stakes in large financial services companies selling loans, leases, insurance and, in the case of GM, mortgages; and their value as symbols of U.S. industrial might is something few politicians are willing to overlook.

Although 2008 is proving a tough year for all carmakers -- Toyota Motor Corp.'s shares have slid 46% in the last year, and Honda Motor Co. is down 38% -- the picture for Ford and GM appears much worse.

Both are struggling under the weight of automobile lineups long on trucks and SUVs and short on the fuel-efficient cars consumers suddenly want.

Bruce Clark, an analyst at debt rating service Moody's, acknowledged that "their balance sheets are very weak" but said he would be surprised if either company went belly up. "It's not that a voluntary filing can't happen, but the costs associated with the bankruptcy of an automobile manufacturer are generally too high."

For starters, both companies still have a lot of money on hand. At the end of the second quarter, Ford had $26.6 billion in cash and cash equivalents, and GM had $21 billion, which even the most negative analysis suggests should be enough to get through this year and most of 2009.

Both still have access to lines of credit and are expecting significant cost reductions starting in 2010, when many of their healthcare and pension liabilities to retirees and union workers will be reduced under a new labor deal.

In recent months, executives at both companies have revealed plans to cut costs significantly by reducing production and workforce; both have also floated the possibility of asset sales.

"We face unprecedented challenges related to uncertainty in the financial markets globally and weakening economic fundamentals in many key markets," Renee Rashid-Merem, a GM spokeswoman, told Bloomberg News on Thursday. "But bankruptcy is not an option GM is considering."

According to Clark, a bankruptcy filing would probably have terrible effects on the residual value of cars and their warranties, making it even harder to sell new cars as consumers gravitate to other, more stable carmakers. That, he said, means that carmakers would choose to stay out of bankruptcy far longer than companies that might normally see it as a way out of untenable financial straits.

But perhaps the most compelling argument against going under comes as a result of the companies' unique position in American industry.

Despite perilously small market capitalizations -- GM is now worth less than $3 billion -- the two continue to bring in massive revenue and spread their money over a huge number of people. With more than 350,000 employees between them, they are true Goliaths, and when one factors in the estimated six indirect jobs created by every Ford and GM worker, nearly 2.5 million jobs are tied to the Big Two (Chrysler is privately held). By comparison, the U.S. has lost about 760,000 jobs this year.

Add to that the deeply symbolic role GM and Ford have in the country's industrial history, and many believe that no politician would ever let such a failure happen.

To that end, just two weeks ago President Bush signed off on a plan to guarantee $25 billion worth of low-cost loans to U.S. automakers and suppliers, a crucial lifeline at a time when borrowing at any price is almost impossible for large companies.

The mortgage "bailout" bill passed the Senate and although some are upset, as it had not passed the House, others are breathing a sigh of relief. In true Senate fashion several things were tacked onto the bill, two tax bills that no one could figure out how to pay for and a "temporary" increase in the deposit-insurance limits for banks and credit unions. The New York Times reported that this change could affect quite a few people and institutions, but perhaps not for the best.

The F.D.I.C. insures roughly $4.5 trillion in deposits, and has $45.2 billion in its fund. If the bill passes, those numbers would change substantially. Currently, the F.D.I.C. insures deposits up to $100,000. The proposal is to raise that to $250,000.

The limit has not been raised for nearly three decades and the increase is intended to bolster customers’ confidence and avert the kind of runs that toppled Washington Mutual, the nation’s largest savings and loan.

The Congressional Budget Office estimated that the new provision would extend F.D.I.C. coverage to $700 billion of currently uninsured deposits. That would increase insured deposits nationwide by about 15 percent, according to a letter sent Wednesday to Christopher J. Dodd, the Senate Banking Committee Chairman.

Proponents say that the move should help calm the nerves of depositors and stabilize the banking industry. After the emergency takeovers of WaMu and the Wachovia Corporation, bankers have worried about customers withdrawing their money.

Criticism comes from other corners, claiming that this increase won't do much good at all and could in fact make things worse by allowing banks to take on risks they normally wouldn't.

William M. Isaac, who was the chairman of the F.D.I.C. between 1981 and 1985, said that lifting the limit to $250,000 is “all show, no substance.” “It doesn’t do what needs to be done,” he said. “It might make somebody’s grandmother feel good, but that is not the problem that we have in the financial world: banks won’t lend to other banks.”

For more than a decade, the banking industry pressed the government to increase its insurance coverage. Congress last raised the limit on insured deposits in 1980, to $100,000 from $40,000. But despite years of rising prices, lawmakers resisted increasing the cap.

The concern was that raising the limit would increase the moral hazard, giving banks and customers incentives to take more risk than they otherwise would take. But with the banking industry under siege, that view appears to have changed.

Still, the move will put more pressure on the insurance fund.

Regulators arranged the emergency takeovers of WaMu and Wachovia without suffering any new losses. But a wave of new bank failures could deplete the fund, and eventually force the F.D.I.C. to draw down on its $30 billion line of credit from the Treasury, or at worst, ask Congress for more cash.

Here's the kicker. Sheila C. Bair, the F.D.I.C. Chairwoman says that they didn't have enough time to prepare for this...(all emphasis added by myself)

“It’s unfortunate that we didn’t have more time to build up the fund in the good times,” said Sheila C. Bair, the F.D.I.C. chairwoman, in an interview Wednesday. The F.D.I.C. did not have the power to raise its premiums until February 2006 and proposed using it for the first time two weeks after Ms. Bair took over the agency the following June. “It is what is, and we are dealing with the situation,” she added.

It's funny she should say that as the procedures the F.D.I.C. had taken towards these premiums in the previous decade or so had been...well, lax.

When banks were flush, most of them paid nothing for a golden government guarantee. Bank failures were so rare that, for a decade, the Federal Deposit Insurance Corporation waived most of the premiums it normally would have collected to insure bank deposits.

After forgoing premiums from 1996 to 2006, the agency must now turn to struggling banks and ask them to pay more, putting more pressure on the industry. If a large number of banks fail, the F.D.I.C. may have to turn to the Treasury for more money, forcing taxpayers to foot the bill.