Its state intervention in the market that has made this crisis possible (or at least the wrong sort of intervention). Central banks setting artificial interest rates distorted the real cost of lending; thus encouraging banks to make outrageously irresposible loans to people that couldn't really afford it. The current crisis is essentially the market readjusting to the level where it would have been if it hadn't got so ridiculously over-inflated.
Bubbles have always happened, and it's always been messy when they fall apart. Google the South Sea Bubble for a famous (and magificently fraudulent) example from 1720, or 'Overend Gurney and Co,' which was the last British bank to experience a full-scale run by depositors until Northern Rock. It was irresponsible lending that did for Overend Gurney, and it's much the same that's done for several banks in this country and elsewhere recently. 'The business cycle' is nothing to do with central banks setting interest rates (although that may contribute in the short term): it's a systemic feature of capitalism.
Secondly, why on earth have these banks been allowed to get "too big to be allowed to fail"? It seems as if all our eggs have been put in far too few baskets. The monopoly commision needs to start setting the size of banks permitted at a much smaller level.
I don't disagree with that in principle, but it falls down in practice at two points.
Firstly, much as it might be the 'right sort' of state intervention, but it still runs counter to the ideological trend of the last few decades, which has been to let the financial services industries do pretty much what they want. Granted, like most dogmas that one has been broken a few times, but mainly in terms of rescuing failing banks (as even the Thatcher regime did a few times), and not to the extent of a wholesale shake-up of the way the market works.
Secondly, it's a matter of 'race to the bottom' economics, or perhaps 'race to the top' is more apt in this case. The theory goes that in a global marketplace British firms will have to be allowed to grow as big as they want to compete with the giant American ones. There's a lot of truth in it too, if you think for a minute on the hurricane that swept away a lot of famous, but small and relatively inefficient, old firms from the City after it was deregulated in the 1980s. The choice effectively is, restrict the market and face irrelevance or don't restrict the market and take the risk of a giant player collapsing: it's the flip side of the coin that says 'either stick up the tariff barriers or dismantle as much of your labour legislation as you can to avoid companies moving elsewhere. In other words, it's an example of 'globalisation.'
