About 10 years ago there was an important book called Global Finance at Risk, by two well-known economists John Eatwell and Lance Taylor. In it they refer to the well-known fact that there are basic inefficiencies intrinsic to markets. In the case of financial markets, they under-price risk. They don't count in systemic risk — general social costs. So for example if you sell me a car, you and I may make a good bargain, but we don't count in the costs to the society — pollution, congestion and so on. In financial markets, this means that risks are under-priced, so there are more risks taken than would happen in an efficient system. And that of course leads to crashes. If you had adequate regulation, you could control and prevent market inefficiencies. If you deregulate, you're going to maximize market inefficiency.
Dean Baker, one of the few economists who saw what was coming all along, pointed out that it's almost like appointing Osama bin Laden to run the so-called war on terror.
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