Crisis of capitalism, not failure of government!

Richard Posner makes an excellent point that the ongoing crisis should be seen as a "crisis of capitalism" than as a "faliure of government". He writes,

"Bernanke and Paulson are neither politicians nor civil servants; Bernanke is an economics professor and Paulson an investment banker. Their principal advisers are investment bankers rather than Fed and Treasury employees. Even the prohibition of short selling, which seems like a product of the kind of mindless hostility to speculation that one expects from politicians, has been strongly urged by Wall Streeters, including the CEO of Morgan Stanley. The White House, the Congress, and even the SEC have been only bit players in the response to the crisis. In effect, the government's power to repair the crisis that Wall Street created has been delegated to Wall Street."

Further, it is now well acknowledged that the real estate and the sub-prime mortgage bubbles which tirggered off this present crisis, were the makings not of Government, but Alan Greenspan, with his unflinching faith that markets can regulate themselves.

As an afterthought. It is now widely accepted that years of historically low interest rates fuelled and sustained the loose borrowing and investing practices of Wall Street. However, this reality is clearly at variance with standard economic models, which proclaim the primacy of prices as the most fundamental signalling and allocative mechanism. If this were true then interest rates should have corrected itself upward as the bubbles got inflated!

Update 1
Paul Volcker weighs in, "In the U.S., the market took over. The market has flopped."