I'm for Free Markets, but... (Tyler Cowen Edition)

Completely ignoring business cycle theory, money pumping, free market theory and a Federal Reserve System that protects high leverage banks and creates moral hazard, Tyler Cowen (and Kevin Drum) have spotted "market failure", stuck their fingers in the air and determined that bank leverage should be limited to 10:1 or maybe 15:1.

Bottom line: If there really was a free market in banking, you wouldn't need arbitrary government mandated leverage limits. No one in such a free market world would put their money in a highly leveraged bank, unless the interest paid reflected the additional risk. In a real free market, there would likely be all kinds of banks, just like there are now all kinds of mutual funds, from low risk money market funds to high risk double market short funds. All of these funds developed, remarkably, without any meddling from Cowen.