May 20 (Bloomberg) -- The U.S. has slipped into its first depression since the 1930s, says Richard A. Posner, and it’s pointless to upbraid the bankers who shoved us over the edge.

“I do not think they can be blamed for it -- implying moral censure -- any more than one can blame a lion for eating a zebra,” the outspoken U.S. appeals judge writes in “A Failure of Capitalism,” a provocative and irritating primer on the gravest financial crisis since 1929.

The crisis was caused by the market itself, not “the antics of crooks and fools,” Posner says. This might sound like blaming aerodynamics for a jetliner crash involving two drunken pilots, a hijacker and an empty air-traffic control tower. Yet a close reading shows that Posner’s assertion is something of a sleight of hand (designed, perhaps, to grab headlines).

Posner isn’t saying that capitalism is dead. What he’s getting at is how America’s love affair with the theory of self- correcting markets created a lethal mixture of deregulated finance and low interest rates.

“Laissez-faire capitalism failed us, but government allowed the preconditions of depression to develop and wreak havoc with the economy,” he writes.

I’d call that a failure of government and central banking, not of capitalism. But Posner, hairsplitter extraordinaire, argues that “the critical role of government in the crisis was one of permission rather than of encouragement.” If you were always skeptical about the glib reassurance of laissez-faire ideologues, this makes for an annoying read.

Posner is a heat-seeking author who lectures at the University of Chicago Law School and has courted controversy in dozens of books on topics as varied as sexuality, terrorism and aging. True to form, he opens his new work by asserting that we are in a depression, not a recession. He concedes there’s no widely accepted definition of the term, so he makes one up.

Costly Remediation

“I would define it as a steep reduction in output that causes or threatens to cause deflation and creates widespread public anxiety and, among the political and economic elites, a sense of crisis that evokes extremely costly efforts at remediation,” he writes.

He then proceeds to lay out a straightforward, jargon-free summary of the fateful events that led us to this day: years of low interest rates, the ensuing housing bubble and pop, the collapse of the banking system and the government’s “frenzied efforts” to resuscitate it.

Investors immersed in the crisis can safely skip or skim the first two chapters of background, yet they should note how Posner refers to restoring the market’s “equilibrium,” an early hint that he views the economy as an equilibrium system, a place where rational buyers and sellers revolve in balance, like planets around the sun.

Riding the Bubble

In keeping with this view, Posner devotes much space to explaining why the different players who brought us the crisis were perfectly rational. Bank executives such as Charles O. Prince of Citigroup Inc., for example, felt they had to keep “dancing” even amid the turmoil in the U.S. subprime mortgage market in July 2007.

“Especially when interest rates are low, riding a bubble can be rational even though you know it’s a bubble,” he says.

He also defends the reasonableness of people who bought homes they couldn’t afford. “There is nothing irrational about stretching to buy a house in a neighborhood with good schools so that your kids can get a better education,” he writes.

As for Alan Greenspan -- the man who slashed the Federal Funds rate after the dot-com bubble burst and even kept it at 1 percent for almost a year -- “he was the prisoner of past successes,” Posner says.

‘Flood of Money’

“He thought he could avoid political controversy by waiting for bubbles to form and pop and cleaning up afterward by lowering interest rates,” as he had done so often in the past. What we know now, of course, is that “each flood of money into the economy set the stage for the next bubble,” as Posner says.

Reading this book reminded me of Greenspan’s belated epiphany about the “flaw” in his ideology. Posner sounds shocked -- shocked! -- to have discovered that financial markets can’t regulate themselves.

“We are learning,” he says, “that we need a more active and intelligent government to keep our model of a capitalist economy from running off the rails.”

Pity it took a meltdown to teach both men what they should have learned from the crash of 1929.

“A Failure of Capitalism: The Crisis of ‘08 and the Descent Into Depression” is from Harvard University Press (346 pages, $23.95, 17.95 pounds).

(James Pressley writes for Bloomberg News. The opinions expressed are his own.)

To contact the writer on the story: James Pressley in Brussels at jpressley@bloomberg.net.

Last Updated: May 19, 2009 19:00 EDT