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John Micklethwait and Adrian Wooldridge

A New Chapter of Capitalism Emerges From the Banking Crisis

The idea that finance is an arm of the state is back — and global banking is likely to be reshaped by it.

Capitalism's Roots - for use with Opinion big take

Photo illustration: Steph Davidson; Getty Images (2)

There are few better places to consider the past few days of banking chaos than 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.