Do you mean to say we are still talking about HFT and what to do about it? Perhaps only those old enough to remember when books and records were handwritten by real people, and trades were executed manually, realize what has really happened to our financial system and how it transpired.

Of course, whenever something goes wrong we have to allocate blame, and in the case of the HFT issue there is no difference. But while recognizing that something must change, it is important to do what others have not: look back at the origins of the problem. The Michael Lewis book and the creation of the new exchange IEX have highlighted the current problems with our financial marketplace, but they do not reveal the fundamental problems and changes that created the current mess.

First, a historical perspective on how the structure of the market has changed over the last 40 years. Without Congress, nothing can take place. Congress is the ultimate buck stop, because it creates all legislation and oversees the markets through the agencies it establishes. In the case of the securities markets, that is the Securities and Exchange Commission. Underneath this layer are the various self-regulatory organizations — the exchanges charged with overseeing their members. The most famous of these is the NYSE.

So if there are abuses to be corrected, look first to our leaders in Washington, who in many ways got it wrong for years despite the best efforts of many well-intentioned members of Congress. But like so many things, that is an oversimplification of a long chain of events that led us to the current environment.

Let’s take the 1960s as our starting point. The bull market of the late 1960s exposed some of the early weaknesses of our financial system. The NYSE could not handle the surge in volume as the market went to new highs — paper everywhere, a single-day record of 14 million shares — so much so that the exchange had to close one day a week to catch up with the backlog of trades.

The solution, automation through computers, was a disaster, as firms tried to solve operational problems by switching to systems managed by people who did not possess the industry expertise. Firms lost control of their back offices and could not determine where they stood financially. The phrase of the day was “fails to deliver and fails to receive.” As the bear market of the early 1970s arrived, many household names and blue-blood firms went out of business. In those days the NYSE took care of its own, and the healthier, larger firms merged or absorbed weaker ones to protect the integrity of the marketplace and the money of customers. There was no Securities Investor Protection Corporation (SIPC) and no customer reserve rule — firm funds and customer funds were commingled and used to finance the business — and no uniform way of measuring the net capital of a company.

If it was bad for larger firms, it was disastrous for smaller members and firms dealing mainly in over-the-counter securities. Customers lost money, firms closed, and abuses were disclosed. Cries for reform were everywhere, and Congress was called to action (sound familiar?). The battle over self-regulation was on, with the NASD and the NYSE each arguing it was more capable of safeguarding the public interest. The upstart OTC market consisted of individual brokers throughout the country making markets in unlisted securities, unlinked by any electronic network. The NASD lobbied hard in Washington to be the chief regulator — not just for the OTC markets, but for the listed market as well.

As the 1970s progressed, Congress was divided not only on regulation but on market structure itself. Which system served the public best: an exchange specialist system, where orders were brought to a central marketplace to compete for the best execution price, or a multiple market-maker system, where many participants competed for customer orders? Many felt the specialist system stifled competition and was an outdated monopoly. The market-maker system, at the time, lacked sophisticated linkage and therefore could not afford price protection. Meanwhile, the larger New York firms wanted to do away with the rules requiring customer orders to be represented and executed on an exchange floor — they wanted to internalize their own orders. Firms making markets in the OTC world saw an opportunity to use NASDAQ facilities to begin paying retail firms for their order flow, which they could then trade against. The pioneer of this practice was Bernard Madoff.

The practice was allowed at first largely for political reasons, as an alternative to the monopoly of the NYSE specialist, without regard for the inherent conflict of interest. This, in my view, was the first step in the gradual decline of the market’s structure. A system built on the principle of putting the customer’s interest first slowly gave way, over the next four decades, to the drive for profits and competition for volume supremacy. Well-intentioned mandates — linked exchanges (the ITS system), order-flow rules, the development of technology to centralize and direct order flow — only raised the stakes and, years later, laid the groundwork for abuse. The reshaping of the credit rules, accomplished by continual political pressure from those with the most to gain, fueled volume and made volume itself the whole point of the game.

During this period the debate was further fueled by the advent of the listed options market in 1973, with the opening of the Chicago Board Options Exchange. Trading options on a listed exchange, with a clearing facility that settled trades the next day, was unheard of. Fashioned after the futures market — and the Chicago Board of Trade in particular — it was a hybrid, part security and part commodity. How to regulate it, and whether it should be allowed, was an intense political battle. The history of OTC options had been rife with abuse. In the early 1970s the historic firm of Roosevelt was put out of business because it had written thousands of naked options without taking any haircut against the firm’s capital. The listed market sought to eliminate these concerns with a centralized, fungible product with standardized terms, regulated by its own rules and overseen by an exchange compliance department. Many in the establishment remained skeptical, which is why the New York exchanges did not get involved initially. Only after the CBOE looked like a success did the AMEX and the regional exchanges join in.

The listed-options business was the shot in the arm that kept the securities business alive, drawing young talent in search of opportunity. The barriers to entry were lower, especially in Chicago, where CBOT firms had financed young traders for decades. Account executives in New York had a sophisticated new product to sell. In many ways this product reshaped the financial future of the industry — through innovation in derivatives, and through a lower barrier to entry that allowed for worldwide growth.

The bear market of the 1970s drove many a broker to selling cars or shoes, while operations staff hung on, trying to clean up the mess the computers had left behind. At the same time, groundbreaking rules were written to protect customers, require uniform financial reporting, and govern how to compute the viability of member firms. Herein lies a subtle insight into the roots of both HFT and the 2008 crisis. The constant tension between firms seeking to shape the financial landscape for their benefit and the guardians at the gate — the staffs of the federal and self-regulatory agencies — worked because self-regulation was a not-for-profit system that functioned for the benefit of its members, but more importantly for the service of the public. These self-regulatory agencies were responsible to report to the federal agencies. In the case of securities, that was the SEC, which through its staff could deny or require rule changes. The self-regulatory arm was a buffer between members who might, for their own benefit, detract from the membership as a whole. Once that part of the system disappeared — with the exchanges becoming public companies, where, like any company, profits became the guiding force — the system was corrupted. Coupled with the collapse of the credit rules, a system in which privilege once came with responsibility gave way to the abuses we see today. Somewhere along the way, things were turned upside down, and we have been led to believe in what Orwell called “doublethink” — the power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both.