New Rules Can't Cure Ailing Wall Street

This story is part of a special series by TheStreet.com investigating shareholders' reaction to corporate corruption on Wall Street. Click here to see a full listing of stories.

Sorry, but no law can possibly protect investors who are intent on ignoring reality.

That bit of common sense certainly seems to have eluded the powers that be. Congress, New York Attorney General Eliot Spitzer, the Securities and Exchange Commission, the New York Stock Exchange -- all are either enacting so-called reforms or imposing new rules aimed at making the stock market a safer place.

It won't work.

At some point, Wall Street and Main Street alike must come to grips with the fact that corporate corruption will always exist, no matter how many new rules are imposed. In fact, requiring extra vigilance from regulators and law enforcers could suck investors into a false sense of security and make them even more vulnerable to the scams -- legal and illegal -- that Wall Street, the accounting profession and corporate America will always perpetrate.

Of course, corruption has played a role in certain stocks' declines, but it's crucial to bear in mind that the market would have fallen sharply even without the scandals. Mostly, shares have plunged this year because even after pulling back throughout 2001, they remained grossly overvalued. Regulations will never stop bubbles, unless the Spitzers of this world attempt to outlaw that basic desire in all human hearts to get rich with no work.

Shadows and Fog

History shows, after all, that the worst rules are made in times of outrage and panic. Enacted amid the anti-Wall Street fervor after the 1929 crash, the ridiculously restrictive Glass-Steagall laws kept U.S. commercial lending banks from offering other types of financial services for decades.

Politicians are at their most potent -- and most moronic -- when they can point to terrible crimes and demand that the world be legislated into perfection or perfect safety. The sanctimony and butt-covering following the popping of the greatest market bubble that America has ever seen has created an intellectual fog that obscures its real causes. Worst of all, this miasma transforms the culprits -- in this case, the individuals and mutual fund managers who were buying the likes of WorldCom at $60 -- into victims.