So hazardous are the roads in India, writes National Geographic, that driving is not about skill, it's about reflexes. Sacred cows always have the right of way--even if they happen to be planted in the middle of the country's new "Golden Quadrilateral" superhighway--but unsurprisingly, there are accidents aplenty.

Somewhat analogous to the vehicular manslaughter on our financial roads. While India's heavenly bovine are assured their unimpeachable place, though, we have before us a golden opportunity to clear some cattle from our economic thoroughfares by setting new regulations, capital standards and risk-management rules.

Bulent Gultekin was governor of Turkey's central bank during that country's 1994 financial crisis. Now a finance professor at Wharton, he notes that "since the 1970s-era oil shocks, all major economic crises have been in the financial industry -- and all of them were in part the products of flawed public policy and then cleaned up in large part through taxpayer money." Further, he sees that "there's always an accommodating public and economic policy that tries to sustain an unsustainable situation. There's also a high correlation between inadequate or misdirected regulation and financial crises. It's a myth that financial markets regulate themselves. They simply don't. Markets, just like individual, do respond to incentives, and if there are distorted incentives, they react in a distorted fashion."

After retracing the crisis's origins to the post 9-11 thirst for fixed income paper, Citigroup CEO Vikram Pandit recently told a Wharton business school audience that global financial markets "will need years to recover."

A new system of oversight will be one channel of recovery along this long road; another will be executive leadership at the highest level--the President. And as David Gergen -- political commentator, advisor to four presidents and current director of the Center for Public Leadership at Harvard's John F. Kennedy School of Government -- told another Wharton audience, "the challenges facing the next president will be the most daunting facing any president of our lifetime. There have been immense problems building up for a long time and crying out for solutions, and time is not on our side." VP-wise, based on last night? Biden by a mile, for the long road ahead.

Overheard in a New York law firm, courtesy of International Financial Law Review: "They say that every crisis has three Is: innovators, imitators and idiots. I guess more of us were the latter than we realised."

Hopeful for a return to smart moves and smart thinking we must be.

Jeff Heilman

10/3/08