MR-
As long as lenders hire their own LOLRs, then it is up to them to bail when they realize that all of their compatriots are being stupid, and going to cost them money.My understanding is, that's what the banks did, voluntarily, back in 1914. The banks got together, created the lender of last resort, and called it the Federal Reserve, mainly because they realized they had this recurring problem, and they thought this would solve it. Fast forward 100 years and here we are, with thing having grown like topsy. As for me positing "we must always have lending" - that's like me positing "we must always have prostitution." Whether or not I posit it, there will always be demand to borrow money. The demand for borrowed money is an emergent property of the human condition. Of course a lender of last resort isn't a MUST. However, kind of like seat belts, history has shown it is probably a good idea if you happen to have a banking system.