Summer fades; the hurt remains. The election hits the home stretch. The financial dominos still wobble, heretofore obscure causalities rippling through the fabric of the financial and the real economy, linking like to like, like to what was once confidently thought profoundly unlike. A financial crisis serves one uplifting purpose: It demonstrates how we're all passengers on the same leaky vessel. But as we fully enter year two, questions persist. How vulnerable is this Good Ship Lollipop of ours? Does it need to be rebuilt or simply repaired? Do we need to reshuffle regulatory fiefdoms -- boost the Federal Reserve, ratchet back the Securities and Exchange Commission, rename the Office of Federal Housing Enterprise Oversight -- or should we revisit fundamental principles and build a new structure for a supposedly new world? So far we've proceeded in this airless pre-November period as if it were the former, allowing Treasury to set an agenda that makes the Fed a sort of vague regulatory superpower, details to come. But that period will soon end.

The fact is, institutional reshufflings are relatively easy, but they fail to answer questions and doubts raised by the continuing crisis. Über Fed or no über Fed, a regulatory system at some point will have to confront thorny, perhaps unresolvable, conundrums. Finance, like healthcare or airlines, suffers from the contradictions of an incomplete deregulatory process. How do we regulate nationally in a global economy? How do we restrain "bad" innovation while encouraging "good"? How do we attain transparency in a system designed to produce complexity? How do we regulate market "abuse" -- from insider trading to shorting to rumors -- in an intensely abstract metaeconomy in which "reality" is always just about to arrive? Who do we regulate, who do we exempt? And beneath all this lurks the white whale: How essential is the financial economy? Does Main Street require the kind of speculative heat and liquidity that complex, deregulated financial markets can generate? Do we make a distinction between speculation and investment, restricting the former to favor the latter? And what, oh Ahab, are the real costs? Do we even have a clue?

Say the Fed acts as a market stabilizer by limiting leverage ratios, which many on Wall Street now resignedly expect. Would the Fed's power to regulate leverage -- and thus to determine profits -- apply to all firms? Would the Fed be able to call up Go-Go Hedge Fund LLC and, say, knock down leverage from 100 to 20? Or would Fed oversight apply only to firms that seek succor from the discount window or another Fed service? (This doesn't begin to answer how the Fed would know what everyone is up to in real time, of course.) But here's the problem: If the Fed chooses, say, to restrain just firms gathered about the discount window, talent will flood into unregulated precincts where risk and reward remain free. Boutiques, hedge funds, buyout shops would proliferate even more than today. "Wall Street" would fragment (it's already well advanced), raising again that venerable issue of the '90s, disintermediation, and inviting foreign acquirers. The Fed would be forced to help out its wards against unrestrained rivals with greater appetites for risk, deeper talent pools and (eventually) greater capital. The über regulator would find itself doing what it once did for commercial banks: allowing them, step by step, to delve deeper and deeper into risk, into the markets.

An option: Provide the Fed oversight over all finance. But that too is problematic. Besides manpower and data issues, why wouldn't firms -- or talent pools -- flow to venues beyond the reach of U.S. regulators? Even with cross-border regulatory cooperation, does anyone really believe capital will not pool in markets that don't artificially limit the pursuit of either innovation or leverage? Our own current regulators, from Treasury to the Fed to the SEC, have long preached the necessity of deregulation, globalization and innovation that a system of leverage controls belies.

The suspicion here is that we're playing at the limits of effective regulation and no one wants to admit it. This sounds scary, but we've probably been there for several decades. We've long had a de facto two-tiered system, an ever-growing tangle of rules that obscures a murkier, if simpler world of practice. Call it regulatory ambiguity, call it hypocrisy, call it pragmatism. It's a real-world solution to "free" markets embedded within a democratic political matrix that, to keep it together, requires an earnest effort to overlook its reality. At crisis like this, however, it becomes increasingly harder to ignore the growing gap between Main Street and Wall Street, rules and practices, illusion and fact.