Clearly the markets aren't functioning properly. Volatility is at 20-year highs -- a 5 percent market swing is de rigueur -- and less and less volume pushes around the market, like a 97-pound weakling taking out a pro football team's entire line. In addition many fixed-income markets remain insolvent, subprime debt continues to threaten our financial system, brokers have become banks, banks are going bust and, on top of everything, the largest and longest-running Ponzi scheme in history has just been unearthed right under our noses. Something is clearly wrong.

The question, however, is, "What to do?" How do we get back on track?

Getting back on track requires reestablishing a level of trust. We need confidence that borrowers, issuers, underwriters, analysts, traders, investors, and industry infrastructure and operations all are working within appropriate guidelines, acting properly and processing efficiently.

The way I see it, trust can be rebuilt in three ways. One, we can rebuild our businesses from the ground up and hope that as the economy and our industry's financials improve, folks eventually will forget about the sins of the past and look forward to the promise of the future. Two, legislators and regulators can dictate the terms under which our financial institutions operate. Three, the industry can work together to create a new and comprehensive set of guidelines to be adopted by regulators and legislators.

We don't have the time to let the industry right itself, and letting legislators and regulators dictate the agenda is risky and fraught with the promise of unintended consequences. The only real way to tackle the current industry challenges is to propose a set of comprehensive guidelines to the legislators and regulators and work with them for acceptance.

To accomplish this we need to take a step back and reexamine what our financial markets are supposed to do, and we need to restructure the market mechanisms, governance, incentives and regulations around this purpose. Unless the industry takes leadership in determining the legislative and regulatory agenda, we will be at the mercy of Washington to determine what we do and how we operate.

While I cried for leadership in Washington to pass the bailout, it is now time to cry for leadership within our own industry. It is time to put our competitive differences aside and work on developing a framework for our industry for the next hundred years.

If we don't set the agenda, we risk having the agenda set by legislators and regulators, who are lining up to take aim at the industry as the Troubled Asset Relief Program (TARP) has gone astray from its original purpose, banks still are not lending as Washington would like, and, while investment banking bonuses are down, they are still significant.

Less Than Zero

The time for action is now. Legislators are proposing committee hearings, with the heads of Wall Street as their targets. This will only make the environment less receptive to industry solutions and reduce the industry's political capital even further. (Can political capital be less than zero?)

While the Glass-Steagall Act of 1933, the Securities Exchange Act of 1934 and Bretton Woods of 1944 guided us through the last major market upheaval, it is time for a new set of regulations. Without industry leadership we will be at the mercy of politicians -- who decidedly are not industry professionals or even economists. Decisions made without industry leadership may be disastrous for not only the health of the industry but the global economy as well.

While we would love it if we could just look forward to the promise of the future without regulatory intervention, if we don't work with legislators and regulators on proposing a viable and sustainable business model, our business model will be dictated to us. And while this dictated business model may be the easiest and most satisfying for the angry hordes, decisions made in anger certainly won't be best for our industry or the global economy in the long term.