Diseconomies of scale and scope. If that bit of economists’ jargon is unfamiliar to you, you are not alone. It means that some companies are so big (have such grand scale) that they are less efficient than smaller rivals, and so diversified (have such a wide scope of activities), that they are beyond the ability of ordinary mortals to manage. This phrase hasn’t been much used in past decades. After all, bigger seemed better, and the products of MBA programs thought themselves capable of managing such a wide variety of businesses that knowledge of the nuts and bolts of any one of them seemed a waste of space in the executive brain. Surely, these companies were benefiting from economies of scale and scope–costs that decline the bigger and more diversified they get.

Well, not surely. We have learned from this crisis that there is a point at which bigger is worse, and diversification increases rather than decreases enterprise risk. A banker might be good at schmoozing customers on a golf course, but not exactly at the top of his game when it comes to understanding the complicated equations being used by the bright young things in his risk management department.