The phrase “too big to fail” is used to describe very large businesses and organizations that would cause a serious economic disruption if they went bankrupt. This concept was formerly used in banking, but is now used to describe any entity that appears too large and politically connected to be allowed to fail. The phrase is a reference to the idea that these types of organizations play an important role in the global economy, and bailing them out or rescuing them from bankruptcy often has ripple effects beyond their own operations.
This phrase became popularized in the United States during the 2008 financial crisis, when some of the largest banks were deemed too important to the country’s economic health to be allowed to fail. As a result, the government stepped in to provide bailouts or other forms of financial assistance, ultimately absorbing much of the risk these banks were taking. Taxpayers, in effect, were providing a “safety net” for banks that were taking on too much risk.
An example of this phenomenon can be seen in the automobile industry crisis of 2008-2009, in which the government supported the big three automobile manufacturers — General Motors, Ford, and Chrysler — in an effort to avoid an economic meltdown that would have had significantly broader impacts on the country’s economy.
Understanding the concept of “too big to fail” is important for business professionals, as it can help shed light on how certain entities can dominate economic markets and dictate policy. It can also help to explain why some businesses are given preferential treatment over others, and why taxpayer money is sometimes put at risk in order to keep certain businesses in operation.