Too big to fail? Why do we allow that?

At 7 Ways the Recession Will Ultimately Improve America, Andrew Lisy makes some good comments about why this economic downturn isn't all bad.

Andrew asserts that The financial system will be forced to get rid of large, "too big to fail" behemoths. He suggests that this will happen naturally, but I have a more direct question: Why do we even allow "too big to fail"?

We don't allow monopolies because of the potential for harm. Why should we allow ANY business to get so big that it can harm all of us? If a business needs monopoly status (as we once thought the phone company needed), we control and regulate it. Otherwise, we break it up. We do this to protect consumers and to encourage competition.

Why shouldn't we do the same when corporations get "too big to fail" ?

Admittedly, drawing the line for too big is difficult. Is Microsoft "too big"? GM? Boeing? ADM? Maybe. If they are, what do we do about it? Force them to break up?

I think so. I think there is a strong case to be made for the danger of "too big". Overly large corporations can suppress competition and innovation. Monocultures can be dangerous - for example, having having ADM control so much of our food supply is actually very scary. Having Microsoft control the majority of the operating system market leaves us open to wide spread viruses - not to mention the suppression of innovation and competition!

You can argue that large corporations benefit us because of economies of scale. You can also argue that international competition requires that. That's all true, but "too big to fail" takes all that away.

People will argue that capitalism shouldn't restrict success, but capitalism shouldn't destroy us either. Nothing should be "too big to fail".