It's funny how so many people are ready to jump on laissez-faire, the free market, or capitalism as the cause of the financial crisis. Exactly when did we have this glorious economic period, anyway? There are regulations too numerous to mention, and of which people are obviously unaware, to believe "deregulation" was the cause of the crisis. If nothing else, the mere existence of the Federal Reserve should disabuse anyone of that notion.
Laissez-faire no more caused the current crisis than it did the Great Depression of the 1930's. Anyone who thinks Herbert Hoover sat on his hands and did nothing when the Crash occurred needs to read some more history. Hoover did quite a bit in trying to deal with the crash. And Hoover himself was no big fan of laissez-faire, and says so in his book The Challenge to Liberty. When Franklin Roosevelt took office, he did the same basic things that Hoover did, only on a larger scale. Unfortunately, since they were both unwilling to admit how much the Federal Reserve, created in 1913, had to do with the problem, their actions were useless at best, and most likely helped to prolong the Depression, instead of ending it.
The Fed made possible the Roaring 20s, the biggest boom this country had ever seen, but it was unsustainable, created by the Fed's loose money and easy credit policies. Austrian Economics describes this problem as part of their theory on business cycles. The bust we know as the Great Depression necessarily had to follow so that the market could correct the malinvestment created by the Fed's policies.
These same policies have cursed us over the decades since then, giving us continual (although gradual) inflation that has degraded the value of our money and earnings, and created other boom and bust cycles, though not as big as the one of the 20s and 30s.
The dot com bubble of the 90's was one such boom/bust period, and now the housing bubble of the 2000's is just the latest boom and bust that we are experiencing as the financial crisis.
Without understanding the causes of the financial crisis, especially the Fed's part in it, neither Obama nor McCain will be able to fix the problem, any more than Hoover or FDR were able to fix the Depression.
Why do people want to blame laissez-faire, free market capitalism? I can most charitably conclude that it stems from a misunderstanding of laissez-faire. The essential argument they make is that the Fed and the federal regulators allowed the banks and Wall Street too much unregulated freedom to operate, and didn't properly constrain them when they made bad decisions. And yet, even if that were true, they were still protected from the consequences of their bad decisions, as government regulation was still in place to back them up or bail them out.
This freedom without responsibility is license, made possible by government regulations, not the lack of regulation. In a laissez-faire, free market capitalist economy, freedom and responsibility go hand-in-hand. Businesses would be free to make decisions, but would suffer the consequences of bad decisions, usually in the form of losses. The losses would tell them to change their policies, or else risk going out of business and letting other businesses take over their assets. They would not be able to socialize their losses as government is allowing them to do now.
Technically, I suppose government license, protection, or subsidy should not be considered government "regulation" the way other government rules and regulations are, but nonetheless, it would not be possible without government policies and power. This crisis could not have occurred in a true laissez-faire, free market capitalist economy, and this is true even if we accept the arguments about "deregulation" leading to the crisis. Governments allowing license or freedom without responsibility is no better than governments requiring burdensome regulation (responsibility) without freedom.
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