I live in the capital city of the least populated state in the Union. Because of this fact, and because the population of the capital city is well under 60 thousand, who would have thought that banks here would multiply as quickly as rabbits in a hutch? In order to get to the primary shopping area of the city, (make that town) I have to drive by our airport. Almost without exception, there is one or more of those expensive private jets parked there. The jets have no markings…nothing to tell me the ownership of the jet.

Why am I telling you all of this? Simply because I find it a bit strange that on an almost daily basis, one or more corporate jets come to town and the per capita number of banks is through the roof. It got me to thinking: How can so many banks be supported by so few people? Then I got to thinking about our old nemeses- Bank of America. (NYSE BAC)

This ever sprawling monster of banking finances, Bank of America…Just how did they become the largest bank in the U.S.? Well, this much I can tell you- it didn’t come from a bunch of thousand dollar bank accounts. No, Bank of America is big because of how it plays the percentages. They play the odds. Sounds like “Vegas? It should. It’s really quite simple. Bank of America uses its assets to borrow the money necessary to keep itself solvent. Let’s see if I can make sense out of this, using a more practical model:

Say you have a hundred dollar credit line and you need $50 for rent in a couple of weeks. You “borrow” the fifty dollars from credit card A, with a repayment interest rate of 8%. At the same time, you then reinvest that fifty dollars in another account that pays you 8.5% interest. Now you wait until the rent is due, remove the fifty dollars, and pay your rent. You’ve just made .05% on your fifty dollars, and you’ve also earned enough money from your job to replace the $50 you initially borrowed. No play, no foul.

This is why it’s critical to Bank of America that it continue to acquire assets. Especially toxic assets. Why toxic assets? For two reasons: First, it is another asset to borrow against, but even more importantly, it’s a high return asset. The interest rate received is well above the market rate, so now they are making 16% interest while using the asset to borrow money at a 8% rate. What a sweetheart deal, right? Right, that is until the toxic asset stops generating income because the person living in that particular home simply cannot make their payment.

Risk management is the name of the game. Imagine if the feds allowed Bank of America to fail. A wave of financial failures would sweep across the nation. Those smaller banks in my own city would begin to experience problems.

What Bank of America has greedily created is a house of cards. One shift in the wind or a disturbance at its base and the house of cards collapses. Where does an entity like Bank of America turn to when it sees an unfavorable end in sight? They cry uncle. Uncle Sam that is. It simply extorts bailout funds.

One of the many questions that occur in my simple mind is this: How can a company like Bank of America, purchase major financial institutions such as Merrill Lynch and Countrywide, when all are losing money? If you and I ran our household budgets like Bank of America does, we’d be bankrupt in no time. But then again, we don’t enjoy favored status, do we? And we don’t have access to a rich uncle.

Living on the edge is how they do it. And we are their safety net.