Worldwide central bank intervention might have calmed the financial sector a bit, but I still think that our present problems are due to too much government rather than too much markets. The rot started when the US authorities started forcing mortgage companies to make bad loans.

The Community Reinvestment Act 1977 had the laudable aim of trying to make sure that people in poor areas had access to loans. Strengthened in 1995, it forced lenders to give mortgages, even in areas where they thought the property market was dire and the risks of default were high. Sub-prime mortgages, as we have learned to call them. The banks packaged those bad loans to reduce their risk, but that just spread the disease to others. Institutions started failing, and even 200 regulators on the case couldn't save Freddie Mac and Fannie Mae. Great work by the regulators, that.

Meanwhile, Alan Greenspan at the Fed and Gordon Brown at H M Treasury were taking the credit for an economic boom. But it was a boom fuelled by easy money – low interest rates that induced people to borrow more and more, without thought to repayment – and Brown's reckless overspending. After 9/11 and the fears of what that might do to the world economy, even more credit was pumped in. But after ten years and more of this credit binge, some sort of hangover becomes inevitable.

Sure, markets are only human. They can't be perfect. They work fine most of the time, but like motorway driving, you do get the occasional shunt when someone doesn't see what's coming. And indeed the occasional multiple shunt. That's a good reason for the government to make sure people are fit to drive – it is no reason for the government to take over the driving of every car.

I can see the case for intervening to staunch a crisis of confidence, since markets are built on that very human necessity. But a hair of the dog never actually helps a hangover. Monetary authorities should stay focused on the threat of inflation, which is the biggest destabilizer of markets – obscuring real prices and so throwing future planning and investment out of kilter. Regulators should focus on the financial fitness of institutions, raising concerns at an early stage, and when inevitable failures do happen, facilitating their orderly wind-up. Frankly, the Bank of England would be better at that job than the bloated, distant Financial Services Authority. And when institutions do take too many risks and fail, what's left should go not to the shareholders, but to the customers whose trust has been breached.