It seems like the perfect solution. There was a huge debate over California entering as either a free state or a slave state, but why not just cut California along the line of the Missouri compromise, making the northern half free and the southern half slave? At the time, the question was mainly about keeping balance in Congress, but this solution would not only retain that balance, it would also be adhering to former laws. Plus, it would help avoid the absurdly tough fugitive slave law that was passed in the Compromise of 1850.
Can someone here explain to me why this didn't happen?
The US exists as a Federation, meaning it is a theoretically a union of politically equal member states. The Federal government doesn't have the power to split up constituent states into smaller ones. Perhaps they could deny California statehood but let them know that they'd be readmitted if they were smaller, though I doubt that would happen.