THERE are few better places to consider the past few days of banking chaos than in a small room hidden away in Edinburgh’s financial district – not far from where the godfather of free markets, Adam Smith, once lived. The Library of Mistakes is devoted to capitalism’s disasters: You can see a shirt signed by Nick Leeson, the rogue trader who brought down Barings Bank, and a portrait of the legendary American fraudster Charles Ponzi. Old newspapers proclaim government bailouts of long ago while the shelves groan with tomes like Where Are the Customers’ Yachts?.

The library takes as its motto an aphorism of James Grant: “Progress is cumulative in science and engineering, but cyclical in finance.” So much of what has happened this month seems like history repeating itself: regulators creating a new crisis by trying to fight the last one; fearless free-market financiers suddenly discovering the virtues of state intervention; class warriors (who predicted 10 out of the last three banking collapses) claiming capitalism is unfair, dead or both.

And, once again, we must confront the reality that the rules of finance are going to change. For the history of financial regulation is basically a history of crisis management. The modern Federal Reserve was created after John Pierpont Morgan had to organise a last-ditch private-sector bailout of the economy in 1907, locking his fellow bankers into a room in his house at 219 Madison Avenue. The Glass-Steagall regulations separating investment and commercial banks were introduced by Franklin Roosevelt in 1933 after the Wall Street crash. They were then repealed by Bill Clinton in 1999, because banking restrictions were blamed for encouraging irresponsible innovation in other sections of the finance industry, only for the division to be partially reintroduced in the 2010 Dodd-Frank Act that itself followed the 2008 Lehman Brothers meltdown.