The “party line” for these people is that it is never the market’s fault; the problem is always due to insufficient deregulation or badly conceived/implemented deregulation.
They invariably claim that all the past crashes/crises were due to bad regulation. If only the market had the ideal set of regulations, no financial crisis would ever happen again. What they fail to see is that no matter what the regulations are at any given time, the free market, if it is sufficiently free, will find some wiggle room to concoct fancy schemes to make a lot of money, which invariable lead to pyramid-like schemes that bring the system down, like the $60 trillion credit default swap market (and LTCM and others before it).
And even if there are optimal regulations that would allow the market to function smoothly without occasional meltdowns, I don’t see why that market would be considered ‘free’. If the government had come in and disallowed lending to people who can’t afford it, even if that worked, why should the government dictate that? Shouldn’t the free market come to an equilibrium with the right number and types of people getting mortgages? If someone wants to give out loans to people who can’t afford them, if they want to take that risk because they have a good handle on the risk, they should be allowed to. The ones whose risk models are bad will fail and the ones whose risk models are good will succeed. That would be how a free market operates. Having the government come in and tell people “you cannot make this transaction because it is too risky” is not free market. And if people claim that that is what was needed to avert this meltdown, then they are admitting that the free market is not viable. We need regulation that goes beyond ideal free market regulation levels.