Fractional reserve banking is the reason why we cannot let banks fail. If banks have practiced fractional reserve banking (frb) in the past then the extent of the collapse which would result from free banking would be too great for the government to tolerate. The government can't let banks fail because they have done fractional reserve banking. Fractional reserve banking makes it impossible for the government to let banks fail.
Libertarians who understand banking realise that frb is a problem because it (induces the government to protect the banks and thereby) prevents free-market banking. To not realise that frb is a problem suggests that you do not understand the banking system.
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