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Too big to fail refers to the notion that a business has become so large and ingrained in a nation’s economy that its failure would have catastrophic economic repercussions. When a government bails out a company that’s too big to fail, it intervenes and provides the company with help to survive.

The term goes back decades, but it was prominent during the 2007-2008 financial crisis, when the U.S. government bailed out certain companies and financial institutions that were deemed too big to fail.

If a large company does fail, the companies that rely on it for their business may collapse as well, costing employees their jobs and leading to a cascade of negative effects that can hurt an economy. Governments weigh the cost of a bailout versus the cost of a company failing, and bailouts are sometimes the most cost-effective solution.

While bailouts can avert an economic collapse, there are opponents who argue they might lead to unnecessary risk taking, and that no company should be allowed to become too big to fail; or in the event such a large company DOES start to go under, the government should not intervene.

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