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Yes, but the libertarian way was tried with the failure of LEH - Barney Frank amusingly called this "free market day", and noted that the American commitment to free markets lasted precisely one day (bailout of AIG followed the day after).

Lehman's failure caused chaos in the credit markets, particularly the repo markets (per Gorton's excellent paper), leading to (effectively) runs on the shadow banking system. I mean, this was unpleasant, right? It seems to me that if you think that the existence of the Fed is a good thing, in principle intervening in the wholesale markets to prevent collapse is no different.

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