WASHINGTON -- Since its earliest days, the United States has suffered periodic financial crises. The first dates to 1792. In the 19th century, bank panics occurred regularly. Then, of course, came the great stock market crash of 1929 and the failure of two-fifths of the nation's banks in the Great Depression. Now we're in the midst of another crisis. It would be reassuring to think that the Obama administration's financial "reforms" -- or, indeed, any conceivable alternative -- would prevent these collapses for all time. Dream on.

Every financial crisis originates in a failure of imagination. It's not that, before the crisis, no one foresees problems, "excesses" and losses. There are usually warnings. But what's routinely overlooked are the fatal interconnections that transform problems into panic. People panic because the future goes dark. They don't know what to expect, and so they expect the worst. Markets cascade uncontrollably downward.

The present crisis did not occur merely because "subprime" mortgages experienced unexpectedly large losses or even because many of these loans were "securitized" in complex bonds, argues Yale economist Gary Gorton. The crux of the matter, he says, was the failure of the "repo" market. The term comes from "repurchase agreements" -- short-term loans (usually overnight) that require the borrower to pledge collateral (usually bonds) in return for cash; the collateral is then "repurchased" by repayment of the loan.

No one knows the size of the repo market; Gorton thinks perhaps $10 trillion at any moment. Banks relied heavily on repo loans, which were routinely renewed. But when doubts arose about banks' subprime securities, the repo market panicked. Loans vanished or became costlier. Deprived of credit, Bear Stearns and Lehman Brothers failed; other institutions were vulnerable. Hardly anyone expected the panic; once it happened, large -- but bearable -- losses became a crisis.

In a crisis, government is the last bulwark against a complete financial collapse. That's the main justification for regulation. Just because all crises can't be prevented doesn't mean that some can't. Though complex, the Obama plan would essentially broaden regulation in three ways.

First, it would empower the Federal Reserve to designate some financial institutions (presumably, the likes of Citigroup and Goldman Sachs) as so important that their failure would "pose a threat to financial stability." These institutions would face stiffer capital requirements -- capital being mainly shareholders' investment. More capital would provide a larger buffer against losses and a crisis.