I’m big on the common-sense idea that if a company is too big to fail that means it should have never been allowed to get that big in the first place and indicates regulatory failure.

I’ve also thought that the press has not done a good job digging back through the wreckage of the financial industry looking at the problems created by banks and other institutions being too big to fail. Let’s not even think about how it did in the years leading to the crisis cheering all those deals (something it’s continued to do even since, see: Bank of America/Merrill Lynch).

So I’m glad to see Fortune and writer Katie Benner take a look at such an institution pre-emptively and raise important questions about whether it’s a threat to the financial system and to the government because of its size. It’s not talking about Citigroup or Goldman Sachs, but Pimco, the bond-industry giant. How big is it?

That gain, plus investor inflows of $14 billion, help cement Total Return’s position as the world’s largest mutual fund, with $132 billion in assets (as of Jan. 1). Pimco, which since 2000 has been a subsidiary of German financial conglomerate Allianz (AZ), now manages $747 billion in assets.

But Pimco is much more than just a big bond house. For one thing, it has become the U.S. government’s partner in reviving the credit markets. It runs the Federal Reserve’s $251 billion commercial paper program, which keeps short-term loans flowing to corporate America. It is also one of four asset managers picked to run the government’s $500 billion program to purchase mortgage-backed securities.

It would have been nice to put this gigantism in context by comparing it to the No. 2 bond house, but I’ll take what I can get.

But if this doesn’t scare you, it really should:

In short, thanks to the missteps of its rivals as well as its own success, Pimco has become essential to the functioning of the credit markets - and the revival of the economy. “If Pimco didn’t exist, the government would have to create it,” says Paul Kedrosky, a senior fellow at the Kauffman Foundation and a strategist with institutional money management firm Ten Asset Management. “It needs an entity that can provide the market liquidity that Pimco can provide.” Gross is well aware of his firm’s special status. “Our role now is to make money for Pimco, but it is also much greater,” Gross tells Fortune. “We efficiently allocate capital around the U.S. and the world. We are in the business of capitalism.”

Any one company with that kind of power is dangerous, not only to the markets, but to our elected officials’ ability to make decisions. Can Uncle Sam afford to cross Bill Gross? Who elected him?

Fortune has some good quotes from skeptics on this:

Peter Cohan, a venture capitalist and management consultant, says he’s concerned that Pimco may have too much sway over Washington and be in a position to dictate policy choices that might be good for Pimco but bad for taxpayers. “This is a bilateral monopoly with one big seller and one big buyer,” he says. “Gross, a famously good gambler, knows that winning in this type of market means threatening not to buy when the government needs to sell. Gross has the government in a weak negotiating position.”

Cohan thinks Pimco had the government over a barrel with Fannie Mae and Freddie Mac, for instance, basically unable to make a decision that would have give a haircut to bondholders:

“He convinced the Treasury to keep his bonds from going to zero, or else he would stop lending money to distressed companies dthat were important to the economy,” Cohan says. The U.S. government will need to raise lots of capital to fuel efforts to end the recession. That will mean issuing lots of bonds. Since Pimco is one of the few buyers capable of absorbing such vast amounts, Washington “can’t afford to let him walk away,” says Cohan.

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