The free market concept postulates that markets are efficient because all information is freely available. Because all information is freely available rational decisions are made and the market is self-stabilizing. Therefore there is no need for regulation.
The fallacy of the free market model is that it does not take into account human behaviour, which has a tendency to confound any logical model. Human behaviour is innately self-serving and illogical.
First, within human behaviour is an intrinsic survival mechanism, which drives us to achieve our own needs and desires at the expense of others. Wall Street executives have a deep desire for money and will acquire it at any cost, evidently at the detriment of society as a whole.
Second, Wall Street made a killing off of poor quality investments sold through subterfuge. Despite knowing the impact these investments inevitably would have on the economy, they continued to flog them to the unsuspecting and trusting middle class. Thus Wall Street had information that the market did not have, which is antithesis to the free market model.
Regulation is required to keep predatory human behaviour at bay; without controls the strong will decimate the weak, or to reiterate, the insider-informed will decimate the rest of us.
