Yesterday’s headline from the Wall Street Journal: “Next Crisis for U.S. Banks? Integration“.  Above it on the same page: “Merrill No. 2 Man Is Latest to Quit“. Today’s front page: “Citigroup Takes First Step Toward Breakup“.  Three more points of evidence that, for much too long, executives in the financial sector have had eyes too big for their stomachs.

There is no better (worse?) example of this than Citigroup. Today’s Journal article says that in the days before Citigroup’s government bailout, CEO Vikram Pandit was “reluctant” to spin of some of the organization’s business units, devoted as he was to Citi’s business model. The company’s strategy has been to grow by cobbling together a variety of financial services firms (hmm…see below), then reap the benefits of operational synergies, including the ability to cross-sell a wide spectrum of financial products. But the behemoth became too unweildy to manage, especially when the credit crunch hit. Citigroup’s growth strategy was based on inside-out thinking, always a mistake.

This could merely be another interesting case study of the internal dynamics that can take down even the most sophisticated companies. But then there’s the domino effect Citi’s struggles are having on the global economy–not to mention the $45 billion of your money that the company has slurped down to try and soothe it’s heartburn.

And what of Robert Rubin, a director of Citigroup for the past nine years? He has resigned his post as senior counselor of the company and won’t stand for re-election to its board, saying he wants “to intensify my engagement with public policy.” Perhaps he’s going to bring the wisdom that ran Citigroup for the past decade to Washington.

Now my stomach hurts.