NYU finance professor Viral Acharya points to Hayek, Smith, Arrow, & Diamond. Snippet:
Governments intervene in banks and markets when crises take place to save the systemic failure costs. This leads to the lack of a private market for generating information on systemic failures, especially in debt markets that are guaranteed by the governments. This loss of information — a Hayekian argument — leads to an unfortunate invisible hand argument. Since debt prices do not reflect the price of tail risks of the economy, economic agents maximising profits do not internalise tail risks. It is moral hazard operating through the invisible hand…
