In the latest phase of AIG's (NYSE:AIG) apparently ongoing bailout -- we're now on round four -- the government will take a significant interest in two of AIG's crown jewels (American Life Insurance Co. and American International Assurance), while providing a $30 billion equity line. Since the government already owns a controlling stake in the parent company, this action raises the possibility that the 90-year-old insurer will ultimately be broken up.

As we inch toward a conclusion of this fiasco, there's an important lesson here for investors: Beware of empire-builders. Former CEO Hank Greenberg assembled AIG with nearly the same appetite for dealmaking as Sandy Weill at Commercial Credit/ Primerica/Travelers Group ... Citigroup (NYSE:C). We're now witnessing these unwieldy enterprises unravel; the idea of the financial behemoth is dead. Apparently, simply parroting "cross-selling" over and over isn't the answer to every problem.

Hitting the (business) history books
Didn't we learn anything from the adventures of Harold Geneen, the rapacious former CEO of ITT? In the 1960s, riding the wave of investor enthusiasm for conglomerates, Geneen bought more than 350 companies, including Avis Rent-a-Car, Sheraton hotels, Continental Baking, and The Hartford (now Hartford Financial Services Group (NYSE:HIG)). In 1995, ITT was finally broken up into three publicly traded companies, after a run of scandals and disappointing results.

It is now clear that the main benefit of AIG and Citigroup's gargantuan scale and tentacular reach was simply an implicit government guarantee, which allowed these firms to obtain a funding advantage – the same model that served Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) so well. The government (i.e. us taxpayers) is now making good on that guarantee, in full.

GE: Are you watching this movie?
Who else should be gleaning lessons from AIG? Although General Electric (NYSE:GE) wasn't built on the promise of cross-selling, the insurer's example (not to mention those of Citigroup and Bank of America (NYSE:BAC)) should give GE management the push it needs to carefully examine the idea of breaking itself up.

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