But recall that Dow stocks were above 9,200 before the certification was announced on June 26 by SEC Chairman Harvey Pitt.

Anyone who seriously believes stock prices mainly depend on confidence would have to conclude that investors had less confidence at the end of this game than they had before it started.

Certification has been widely advertised as a device to punish or prevent fraud, but that claim is itself a fraud. It was always a crime for the CEO or CFO to deliberately release fraudulent financial data, and this gimmick does not change that one whit. Criminal charges still require proof that corporate officers "knowingly" submitted false reports, and that is not easy to prove. That does not mean certification will have too effect, only that the effects will be entirely different from the intent.

The real purpose of certification has nothing to do with public law against fraud and everything to do with private law. As CNBC noted, when Pitt initiated this crusade, he emphasized that "CEOs and CFOs must stand by their earnings statements, adding that any false certifications will result in personal liability." Pitt is a lawyer, after all, and lawyers are instinctively attracted to anything that results in more "personal liability"-that is, more lucrative lawsuits.

Certification amounts to promising the impossible -- indisputable accounting. That promise of perfection invites disputes and regulatory harassment, which invites lawsuits. As a result, executives will naturally become ultracautious, even timid. Bold new ventures are to be shunned, particularly if they are too complicated to account for with simple figures.

This whole certification game is mainly a political gift to trial lawyers who chase sick companies just as ambulance chasers pursue sick people. CEOs and CFOs have just become an inviting new target for class-action suits.

Class-action suits are ostensibly on behalf of stockholders, but there is rarely more than small change leftover after the attorneys split the booty.

This added risk of litigation has scared the stock market ever since late June. Why? Because it must shrink future profits by inflating the cost of insurance and compensation. Companies are going to have to pay much more for insurance to cover the risk their executive might be sued. But insurance has limits, so a fat new risk premium must also be added to executive pay. Financially troubled companies, in particular, will have to offer top executives much more costly pay packages to attract the unique talent needed to turn things around.

Note well that certification applies only to those companies foolhardy enough to sell shares in their future profits to the public. It would not apply to Arthur Anderson, for example. In the future, we can expect more of the promising new companies to stay private and more public firms to be taken private. Staying private is a simple way to avoid regulatory harassment and the associated expenses of battling frivolous lawsuits. As a result, stockholders may miss out on some of the best opportunities.

Despite a few encouraging rallies here and there, stocks are still much cheaper today than on June 26, when this certification scheme was first announced. Investors did indeed lose confidence at that time. They lost confidence in bureaucratic regulations that increase the cost of corporate insurance and compensation, discourage risk and discourage private companies from going public. The only investors who might have benefited from that sort of help were those who bet stocks would fall by shorting the market. But most of the likely damage is already capitalized in lower stock prices, as is true of all stale news. It is time to put such political publicity stunts behind us and get back to business.

-- Reynolds, Alan