Even though it is the fall, and a dreary day at that, we can finally say, with the release of the Dodd bill earlier this week that the financial regulatory debate is in full bloom.

Senator Dodd’s bill has some interesting proposals and some dangerous ones, but there is more than enough time to get into that. Also more later on the House Financial Services Committee continued mark-up of a systemic risk bill. As the debate has been unfolding, I have felt that something has been missing in this debate and I haven’t been able to put my finger on it. Yesterday, it hit me like a thunderclap.

I had the opportunity to participate on a panel regarding legislative and regulatory issues for a webinar hosted by the Society of Corporate Secretaries. Driving from the airport to midtown Manhattan, we passed a long line of people who were waiting to enter an unemployment office in Queens.  Then it struck me, the current debate on financial regulatory reform totally misses the point. The debate gets hung up on issues such as how many regulators do we have, when the question that needs to be asked is how should a fully functioning capital markets system, which will fuel economic growth and job creation, look and operate in order to be effective.

Capital markets are not a collection of money growing trees, rather it is a fully integrated system that provides businesses with the liquidity they need to operate grow and create jobs. Capital Markets, if functioning properly, will make rational decisions in how to allocate resources and the growth will follow. If you think of our economy as a car, capital markets are the gasoline or electricity if you have a hybrid.

Too much of the debate on the Hill has been focused on punitive measures or feel good responses that may in fact have negative consequences. Our markets are organic, forever mutating and changing, while the legislative and regulatory structures are often static. You really have to look no further than our letter on TARP regulations over this past summer and Ken Feinberg’s public musings yesterday on the negative impacts some of his rulings are having.

Ultimately, capital markets are not about hot shot executives, profits or too big to fail. Rather the debate we need to have is how we can have dynamic capital markets that will create jobs and allow our economy to vie in an ever growing competitive market. If we get it right, the people on yesterday’s line can get productive, good paying jobs. If we get it wrong, they may eventually get jobs, but without the living standards that come with a productive economy.

Rather than talking about too big to fail, we need to inject the concept of how to succeed.