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Too Big To Fail - Essay Example

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Summary
The concept asserts that some firms are too big and influential in the economy, such that their failure or collapse will have very…
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Too Big To Fail
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Too Big To Fail

Download file to see previous pages... In addition, these large financial firms control the backbone of the economy. Their failure would lead to a financial crisis that would affect members of the American society (Hughes and Mester 12).
The concept of “Too Big to Fail” has two phases. The first phase is the positive effect that these large firms have on the economy. A large firm is very complex and organized, and as such, provides numerous economic opportunities to both the country and its citizens, such as employment, economies of scale, and better service delivery. On the other hand, it has a negative phase whereby their failure would bring down the economy to a standstill. For instance, all the small firms that depend on these big firms will also collapse, and their employees will be jobless. There would be no money flowing through the economy considering the economic crisis caused by the failure of these big firms. As such, the government takes necessary steps to eradicate these risks by supporting these big firms with a bailout whenever they are in crisis. However, they use taxpayers’ money, which is another burden to the country (Feldman and Stern 13).
The Freeman newspaper article discussed the concept at one point in time whereby analysts argued over the inclusion of the concept in the banking sector. The introduction of the concept in 1984 to the economy of the United States and especially to the banking sector in the country emerged after the failure of the Continental Illinois. This failure led to a massive economic crunch in the country, and as such, the government took proactive steps to bail out the bank. By introducing the concept, the US government overlooked the reasons why the bank failed in the first place. As such, the concept only worsened the banking condition in the country, instead of the remedy it was to provide, as practitioners in the banking ...Download file to see next pagesRead More
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