It is possible that the sum of those bad decisions could threaten financial stability or the economy as a whole, and so we monitor the situation as a matter of course. But there is no reason to assume that, in all circumstances, equilibrium will devolve into turmoil as borrowers and lenders inevitably sow the seeds of a financial crisis.
Indeed, market discipline enhanced by appropriate transparency can be very helpful in this regard. That’s not to say policy-makers have no role in enhancing this line of defence. Financial education and efforts to improve financial literacy can help consumers better understand the important decisions they make.