Too big to fail, TBTF

1. Definition of law

Too big to fail (TBTF) is an economic term that means that if a large company or financial institution goes bankrupt, many of its stakeholders will suffer and the economy will be catastrophic, so the government must bail it out.

2. Origin

This economic logic was first popularized in 1984 when the Continental Illinois Bank went bankrupt, causing the worst bank bankruptcy in U.S. history, with Representative Stewart McKinney insisting on relief through active intervention by the U.S. Deposit Insurance Corporation (FDIC). In South Korea, when many large companies went bankrupt during the 1997 IMF bailout crisis, the government's insistence on intervening in large companies and financial institutions emerged in earnest, comparing it to the logic that "If marijuana is caught, it will be like defeat."

3. Controversy

When the 2007-2008 global monetary crisis broke out, and once again the logic that governments should bail out large corporations and large financial institutions emerged, arguments for and against this became public. In the first place, criticism has been raised that saving large banks or financial institutions that are not effectively managed has an adverse effect on the economy.

4. Examples of application of the law

1) Saving Big Businesses

In South Korea, it has often been cited as meaning that large companies should save their companies even by spreading taxpayers' money if their debts increase and defaults occur due to poor management. To put it simply, when a large company takes many employees and subcontractors' jobs as hostages to expand its octopus feet or carry out unreasonable businesses, they take them as hostages and take them to the streets when we disappear. What do you want to do?' he threatened the government and eventually received public funds and preferential treatment, leaving a tradition that never went bankrupt for large companies. However, Daewoo Group, which had just left shouting this theory of immortality until the end, eventually disintegrated.

2) the cause of the endless revival of chaebols

Since the 1960s, whenever large companies fell into a crisis, the government has used extra-legal tricks to save chaebols, and a typical example is the August 3 bond freeze in 1972. Conglomerates have been accustomed to this method for decades, and they unconditionally borrow money and grow in size with the complacent idea of "the government will save them all if it gets difficult," and the damage accumulated and exploded at once in 1997.
 

3) Wall Street in the United States

In the United States, there's a saying, "Too Big to Fail," which means "too big to fail/to let go of it." It is also commonly abbreviated as TBTF. It's mainly used for big financial institutions on Wall Street. If they collapse, the financial system will collapse and the overall economy will collapse, so it means that even if it is immoral, we should save it for now. In 1984, Stewart McKinney, then a U.S. Representative, used this expression in connection with the relief of Continental Illinois by the Federal Deposit Insurance Corporation (FDIC).

4) Moral Hazard

① A bank that doesn't care about small money

If one borrows $100 and fails to pay it back, the bank can afford to handle it with the capital in the bank, whether it's collection or seizure, or in the worst-case scenario, it can recover, handle losses, and cover them. But if it's too large to pay back $100 million, it's impossible to even lose money with the reserves or assets that a bank already has, and it's almost impossible to collect or seize the debtor's assets, and it's worth $100 million.

② small depositors do all damage

So if you take all of this loss, the bank goes bankrupt with a high probability, which comes back to the damage of the depositor who left his assets in the bank without any crime. It is driven by the logic that the depositor who deposited the money should take responsibility because it is the fault of entrusting the bank. In the case of the recent bankruptcy of Silicon Valley Bank in the United States, if the government has not stepped up, depositors should bear the damage. In any political system, if this happens, the loss of depositors is enormous. No matter how good a democratic regime is, the credibility of the government is at the bottom. However, the Moral Hazard still constantly tempt banks to use the pressure on politicians to fill their mistakes with government money, taking their depositors doing business with them as hostages.

5. Apply to me

1) A loan too easy loan

Sometimes, a bank employee visits the company and recommends that you borrow money that you can borrow from the company. I accept it so easily to solve the problem right now without worrying too much about the offer of easy loans from the bank. In the end, it is a huge burden when high interest rates continue as they are now.

2) A brutal bank loan

If you can't afford the interest, the bank will proceed one by one according to the rules set within the boundaries of the law. You can't even appeal to emotions. I think I'm expressing reality as reality because I can't get out of it.

6. Success by law

1) A person who is good at insignificant things is good at grandiose things (or massive things)

Now, it is important to be grateful for even trivial things and actively and perfectly digest them.

2) A lifestyle that cherishes everything

When I had a lot of pockets, I drank Starbucks coffee whenever I wanted to. But now, it's changing everything. I use the black coffee bag that I bought at the mart. I don't have a good sense of taste and smell about the taste of coffee, so I don't feel pressured. And I threw away all my credit cards because I had to change my thoughts and habits first. I only use a debit card. You can never use a debit card without money. I feel with my body that slight changes in habits are leading me to success and I am becoming more confident.