The chairman of the London Stock Exchange has urged the Occupy movement to blame irresponsible governments rather than City institutions for the global financial crisis.

The LSE is the target of the Occupy the London Stock Exchange protest, but Chris Gibson-Smith believes the inhabitants of the impromptu tent city in the capital are blaming the wrong people.

He said they should target the politicians who allowed banks to run up huge debts.

"There are unintended consequences of free markets," he added. "It's not capitalism that has been the problem, but irresponsible governments and politicians who have allowed the financial system to explode by permitting the build-up of ludicrous amounts of debt and leverage.

"No one ever said that free markets could or would be self-regulating. That's where people over the past few decades have got it wrong, and many are still in denial – look at Alan Greenspan, [the former chairman of the Federal Reserve], who is still defending free markets."

In an interview with the Independent on Sunday, Gibson-Smith said the protesters' argument was misguided.

"The Exchange is a misplaced symbol," he said "I think many of the protesters have confused capitalism with materialism, and that might be part of the problem of how they see the causes of the crash.

"Capitalism is self-evidently still the best and most efficient way of delivering wealth creation. We have seen that wealth has been created and redistributed around the world, from China to Brazil, when you open up economies to the markets."

Following the eurozone deal struck in an attempt to shore up market faith in sovereign debt, Gibson-Smith said voters should ask how countries such as Greece were able to build up unsustainable borrowings.

"How on earth did governments – here and in Europe – get away with spending so much? Just look at the last Labour government, which increased public spending every year from 1997, when it was £300bn, then another £100bn three years later and so on and on, until nearly £1tn this year," he said. "How did we let that happen?"

He added that exchanges such as the LSE, which hosts more than 3,000 companies, and regulators now faced the task of picking up the pieces. "Bringing order back to the markets is an awesome task, but that's what we, and the regulators in the US and Europe, are trying to do," he said.

Last month, the Labour leader, Ed Miliband, pledged to recast capitalism by rewarding "producer" businesses and tackling asset-stripping "predators".

In a riposte to politicians' criticism of City businesses, Gibson-Smith said executives should be asking for more from the government and taking a more confrontational approach, with GDP figures this week due to show that the UK economy is barely growing.

"Businessmen and women are constantly too polite to government," he said. "It's time for business and the job creators to be more vocal about what they really think of policies."

The LSE chairman is adamant that successive governments have misdirected resources and cut in the wrong areas, introducing "absurd" tuition fees.

"Even the education budget has hardly increased – one area where we should be spending more, instead of absurd tuition fees. Then they had to increase taxes to fund all this spending. That's why we got Gordon Brown's raid on the pension funds and on pensions – scandalous," he said.

"Politicians, and the civil service, lost control of the system. Where has all the money gone?"