We humans are easily seduced by abstract, feel good ideas. The free market is an abstract idea, like the social contract or a personal God. Nobody has ever seen one. We've known for centuries that debt and lending are a two-edged sword, creative but prone to excesses. That goes back to John Law and his 1718 Banque Royale, or even earlier. Paper currency adds flexibility, but is often abused by governments. We need regulation because those who create debt plan only for boom times. However, the regulators are easily distracted and corrupted. Think of the automatic Gramm-Rudman-Hollings budget cuts that were supposed to keep our federal budget out of deficit: would a college freshman defend such a scheme as credible? Did those fictitious budget cuts stop Greenspan?
Modern governments control interest rates and manipulate the economy in many ways (such as tax policies). Our government now prohibits shorting financial stocks- that's market manipulation. We have the plunge protection team (the real name is more mundane- Google it if you don't know about it), which Reagan created to slow stock market declines. Nobody is serious about restraining upward excesses.