Too big to fail

One of the more curious thing about and the US economic recovery efforts in general is that certain institutions have been bailed-out with taxpayer money because they were too big to fail. That is, they were so large that their failure would bring down the US economy. So the solution that makes no sense is to merge them with another big corporation so that if they fail again it could be even more catastrophic.

Am I missing something? Wouldn’t it be better to rescue them (if need be) and then force a break-up into smaller entities that could fail without bringing down the entire economy?

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