I'm an advocate of providing incentives to entities that are "Too Big to Fail" to split up into smaller, independent components that won't endanger the economy or even civilization itself if they happen to fail. The devil's in the details regarding how to do that, but I think it's probably plausible and desirable for private companies.
However, the Federal Government is the 800 pound gorilla (or rather the $3,800,000,000,000 gorilla) in the room when it comes to entities that are "Too Big to Fail". Failure doesn't necessarily mean a short-term catastrophic failure. An entity that becomes increasingly sclerotic and non-functional to point where it parasitically sucks in an enormous vortex of resources from its increasingly beleaguered hosts also becomes a failure at some point.
Since the Government is "Too Big to Fail" (and therefore "Too Big to Exist"), it should be broken up. Since it is so large it should be broken up into numerous entities. Picking a number out-of-the-air, I'd say that breaking it up into 50 entities (or 57 if you're Obama), would be about perfect. Conveniently, we happen to have 50 mostly functioning government entities to which we can transfer responsibilities and authority. Also conveniently, with the possible exception of a few of those States, none of them are "Too Big to Fail". Problem solved.
Wasn't that what our Founders had in mind? Smart dudes.