There’s been some terrible news lately. Have you heard? The Standard & Poor’s 500 stock index was up 23.5 percent in 2009! That’s the best performance since 2003, and on Monday, the first trading day of the year, the market rallied even further.

Have you ever heard of anything more horrid in your life? True, the market is still down compared with the highs of the decade that's just passed, but not too many people take such a long-term perspective. What this means is that efforts in Congress to reform the capital markets, which are already teetering, are likely to become even more difficult to turn into reality. And as for the congressionally appointed committee that was established to probe the details of the financial crisis: It has had a slow start, and the sense of urgency is fading fast.

Now, don’t get me wrong. I like rising stocks as much as the next guy whose retirement savings are in hock to index funds. A market rally, if it can be sustained, will improve consumer and investor confidence overall and may actually help convince the banks—since the Obama administration isn’t forcing them—that the time has come to loosen the purse strings and start loaning again to businesses and consumers. But if we’ve learned one thing in recent years, it’s this: Wall Street needs adequate regulation so that the misbehavior of large banks doesn’t send the economy into a tailspin again. If the economy is to recover, if the ability of businesses to raise capital is to return, reform of the markets is a must, not an option. And fulfillment of that goal seems to be growing more distant than ever.

I think the problem can be summed up in one word: amnesia. Market rallies make people—policymakers as well as the general public—forget about systemic issues in the financial markets. The greatest reforms of modern times, the securities laws enacted in 1933 and 1934, followed the 1929 market crash and the Great Depression. The Pecora Commission was a model for investigative bodies that followed. There was no amnesia because the market was still staggering through the early days of the New Deal.

By contrast, look at what happened in 1998. The financial crisis in Asia and Russia led directly to the collapse of Long Term Capital Management, a huge, overleveraged hedge fund, which necessitated a bailout by the big banks, organized by the Federal Reserve. There were weak efforts to deal with the issues created by the LTCM bailout, but the market rallied in 1999—and voila!—amnesia. In the end, nothing was done. In fact, in 2000 Congress specifically exempted over-the-counter derivatives from regulation.