How Big Is Too-Big-To-Fail Factor in Investing Decisions?
filed in Daily Buzz News on Jul.31, 2011
By David Hunkar:
The Too Big To Fail (TBTF) concept is the belief that certain financial institutions are so big and so complex that their failure will be be disastrous to the whole economy. Some of these institutions are indeed so huge that their failure is unimaginable and may wreck the economies of many countries in addition to their domestic economies. Hence, in the interest of saving the economy and contrary to economic principles, governments prop them up even if they are about to collapse due to their own reckless actions.
In the U.S., the TBTF concept was put into action during the recent credit crisis when certain financial institutions were saved from collapse. For example, Citigroup (C) and Bank of America (BAC) were two super-banks that were bailed out by Uncle Sam in order to save the economy. Institutions such as Citi and BofA are like giant a octopus that spread its