No. The government needs to step in to prevent a total collapse. When the government refused to step in to rescue Lehman Brothers (precisely because of the mor

No. The government needs to step in to prevent a total collapse. When the government refused to step in to rescue Lehman Brothers (precisely because of the moral hazard problem you allude to), all hell broke loose. Since the expectation (correctly) is that government will step in, we need regulation (before a crash) that limits risk taking, for example capital requirements (=equity) for banks. Your narrative has been, in my opinion, comprehensibly refuted by, for example, Anat Admati & Martin Hellwig in *The Bankers' New Clothes" [1], or Krugman already in 2008 [2]. An overview over the debate is given in [3], including this quote from Krugman: > “for any public figure to go with the Congress-did-it argument at this stage is for him to reveal both that he is grossly ignorant about the central policy issue of the day and that he gets his ‘analysis’ from right-wing flacks.” This is not to say that government policy has been perfect; but taking the government out of the equation is not going to fix anything. [1] http://bankersnewclothes.com http://bankersnewclothes.com [2] https://www.nytimes.com/2008/07/14/opinion/14krugman.html?_r=1 https://www.nytimes.com/2008/07/14/opinion/14krugman.html?_r... [3] https://www.outsidethebeltway.com/bloomberg-dont-blame-banks-for-mortgage-crisis/ https://www.outsidethebeltway.com/bloomberg-dont-blame-banks...