The main issue with capitalism as it stands now, is the refusal to let things fail.

The issue is much, MUCH broader than that.

Capitalism is not a 'rational' system, it doesn't seek even self-preservation. Capitalism is a self-feeding fever. And when you need to burn out a few thousand years of entrenched aristocracies, that's not so bad. But when your temperature is 106 and still rising, you should be looking at how to fucking stop it.

Even if governments regulated capitalism in such a way as to allow perfect competition, the result of that would be that capitalist institutions would become more adept at their individual tasks without regard for the actual wellbeing of society. Shit, man, letting things fail doesn't mean Google (which isn't even 30 years old, for example) is felled and the people are free, it just means the next search engine giant is even better at tracking us and selling our data. "Perfecting" capitalism in this sense would not mean a necessary increase in our society's wellbeing, only an increase in the efficiency of institutions which are already not-always net-positive.