I've come to realize that there's only 2 ways the entire crisis of 2008 could have been dealt with.
(1) Let the banks fail and face the depression that the pundits promised would follow.
(2) Big governments saves the banks, averts a depression.
Method (1) would have been the capitalist way out. The free market way out. The fiscally conservative way out. Method (1) would have instilled a fear of misbehavior in the banks and other financial institutions - and thus ensured that the crisis would not have occured again.
However, method (2), the "big government" solution was implemented. The banks were saved by taxpayer guarantees. A depression was averted (say Krugman et al.). Let us pause here and note that the more fiscally conservative politicos decided that capitalism was a no-go. Bush et al. decided that they needed a strong state to "guide" capitalism. They decided that the invisible hand was too harsh a fitness function for the Genetic Algorithm that is the market, especially when one is dealing with banks.
Now that method (2) has been implemented, we must forget about method (1). There is no way we should even consider unfettered capitalism in the short run (with the same companies which benifited from the handout still in existence). The only way out is to regulate the banks to hell. If politicians manage to impose method (1) characteristics on the system what will result is a bastard child of socialism and capitalism -- one where losses are socialized and profits are privatized. There is a bunch of people that believe this has already happened.
So, my understanding is that there is no option but to regulate everything, sit down and shut up and accept all the inefficiencies that come with it. If you want to say "market knows best", then I will remind you that in your worldview, you are dealing with financial institutions which should have died. If you let them get away with no regulation, you should realize that what is happening is not capitalism anymore. Moral Hazard, yada yada yada.
So, in essence, fiscal conservatives should also realize that their philosophy is fundamentally incompatible with democracy. After all, a fiscally conservative president rescued the banks with government money. This should be enough evidence for us to throw these ideas (from Ron Paul et al.) into a bottomless pit.