"Too Big To Fail" companies should be broken up into smaller pieces

They aren't monopolies. The two big to fail simply comes from them being too interwoven into too many people and companies.

If a Citi fails, think about what gets hit...

Hundreds of thousands of employees
Citi stock owners
Holders of citi bonds
Other banks involved in swaps with Citi
Commercial RE buyers who were counting on financing from Citi
etc...

and, all the people that work with THOSE people.

and so on and so on.

You don't need it to be a monopoly for it to be devastating.

In a forced merger / buyout, I thought the employees and stock owners get screwed anyway?

I'm not saying monopolies and too-big-to-fail situations are the same, but rather the consumer & taxpayer should be protected from both kinds of situations equally. The government shouldn't allow companies to M&A into larger companies that become too-big-to-fail the same way the government stops companies from M&A'ing into monopolies. If we broke up too-big-to-fail companies into smaller more manageable companies, we could then go back to a free market system and not have to worry about bailing out the system so often.

The issue wasn't their size, the issue was their exposure.

Long Term Capital was VERY small, and its exposure was huge, and it could have taken down the system if it wasn't caught in time.

You are confusing two separate issues.

We could have had 100 small companies doing the same stupid things, and, hell, it might have been worse given that we might have noticed later.

That makes sense. So should the government instead strictly regulate "exposure", or will that happen naturally thru the massive deleveraging going on in these institutions. And, if that's the case and we don't need to regulate it, will we ever have to worry about the "exposure" building up again like it did over the last five years?

"In a forced merger / buyout, I thought the employees and stock owners get screwed anyway?"

Not nearly as much as bankrupcty. Lehman stopped paying severance.... and shareholders got nothing. And outside of a couple divisions that got bought out of bankruptcies, everyone lost jobs.

Buyout means you're getting at least something for the shares. And if the company isn't bankrupt, it has to pay all employment contracts. And bankrupt companies generally end up with 0 employees (outside of lawyers). Layoffs and Merrill might suck, but better than 100%.