Well, that's not really what I said. I am a free marketeer, but not laissez-faire. In terms of regulation, we are no where near a free market. There is not one industry that isn't heavily regulated. In the US, regulation came in after 2003, with Enron. The problem is that that just means that the just man pays for the crimes of a few.
The model we have now might be best described as a socialist-capitalist hybrid. But the setting of interest rates at 1% (merci Greenspan) encouraged massive borrowing, because when you consider inflation, you were being paid to borrow. Then the rates eventually have to go back up, and people go bust.
If there was no central bank, interest rates would normalise, when lots are saving, they would go down, indicating people were going to buy in the future (why else would you save) and so investment is a good idea. Low interest rates would also make investment easy. When people aren't saving but spending, so long-term investment is a bad idea, the rates would go up.
So, without a central bank setting interest rates, interest rates tell businesses what they should do. Businesses will always invest when interest rates are low, but when they are artificially low, that investment is a mistake.
The second regulatory mistake was to stop the last two recessions from happening. Since the early 1990s there has not been a recession. The reason is that governments continued growth by making credit easily available, and cheap. This means that the economy rides higher than it should do. In other words, it creates a bubble. What it also means is that companies that are inefficient, and should have gone bust in those two recessions that never happened, carried on, expanding. Now it is impossible to keep them afloat, and so we see massive bailouts/bankruptcies. Recession, when frequent and mild, helps make the economy stronger by evolutionary processes. When avoided, it turns a short, mild economic cycle into a long violent one. That is why this is the worst recession since the 1930s (Where, incidentally, the government did more harm than good-compare the recession of 1920 to the depression of the1930s. Because Wilson was unable to govern (he had sadly suffered from a series of strokes), and Harding willing to cut spending and encourage thrift, there was no government intervention like that of FDR and the economy was able to bounce back, contrary to Keynesian theory). Furthermore, this fuelling of the markets, particularly the housing market (as you will see from the third point), encouraged the absurd belief that house prices always went up. They had done for a long time, but purely because the government kept ownership artificially high.
The third point is that the government has encouraged banks, particularly in America, to lend to people who just cannot pay the mortgage back. The reason for this is to fulfil that ideal of home ownership. In particular, Freddie Mac and Fanny Mae were forced to engage in suicidal mortgages, because of their government history. This sort of policy by G W Bush resulted in home ownership going from 65% to 70%, but totally artificially. This fuelled a housing bubble because people were buying houses that they couldn't afford. Now they have defaulted on payments, the bubble has burst and we have come crashing down.
As you can see, all of this explanations are examples of regulation that forces business to act in a certain way, be it setting interest rates, or forcing it to survive and expand by avoiding what can only be described as healthy, mild and periodic recessions, and downright telling banks who to lend to.
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