President Bush today said that he supports free markets. In light of the current economic turmoil, other people think that free, as in unregulated, markets are the problem. Free markets are not really the issue. Free markets are largly unsustainable because part of the the freedom inherent in the name is the freedom to manipulate, or coerce, or rig the outcome of market activity. Eventually, the free market ceases not only to be free, but also ceases to be a market.
The attribute of being free does not imply free from government regulation; indeed government is an appropriate agent to ensure that markets are free from improper influences. The benefits of markets depend on voluntary transactions, but only if the process of those transactions is fair. "Free market" is really an inexact term for "fair market."
A fair market means that the transactions that occur there are not improperly influenced by external factors. It is the process by which the transactions occur that must be kept fair, and government regulation is a legitimate means to achieve this. Government can enforce rules regarding openness of information, anti-competetive or coerced processes. Govenment regulation can help ensure that transactions occur between two willing parties acting in their own interests.
The risk of regulation is that it is not obvious to the agents of government when the legitimate purpose of regulating a fair market transgresses into manipulation of markets in the interests of other policy concerns. A very clear example is the real estate melt-down and credit crisis, in which market dynamics were altered by the external coersion of facially well-intended government policies. Markets are inherently agnostic and non-judgmental. They do not function any better when the policies that contaminate their processes are benevolent than when they are malevolent. Whenever government regulation favors one market participant over others, for whatever reason, the market is no longer free, it is no longer fair, and the benefit of market mechanisms will be lost.