The birth and growth of New York's legendary street -- Wall Street -- is charted in economist Howard Wachtel's book, Street of Dreams -- Boulevard of Broken Hearts. The author says war and scandal have shaped Wall Street into a global symbol of wealth and power.

Wall Street's 220-year history is punctuated by booms and busts, fueled by a relentless pursuit of fortune. Mr. Wachtel says that since Wall Street began in the late 18th century, the actors have changed, but the plot has stayed the same. A few insiders make money, and the masses -- infatuated by the hope of striking it rich -- provide much of the money for the investment but are too late to profit from it. It all began, the author says, with debt notes at the end of the American Revolution.

"Alexander Hamilton, the first secretary of the U.S. Treasury, needed to dissolve, resolve and get rid of about a $60 million Revolutionary War debt," says Mr. Wachtel. "And therefore, what he did was he created a scheme by which he took over the states' debts, but did it in such a way that individual brokers on Wall Street who dealt in furs and in slaves had also speculated in this paper [debt notes] for which they roamed around the country buying up this bad debt at basically 25-cents on the dollar. And then Hamilton paid them 100 percent on the dollar so they made a huge profit and that's the origins of Wall Street."

Mr. Wachtel, who is an economics professor at the American University in Washington, D.C., says these brokers were the first real insider traders, those who base investment trades on information they obtained privately.

"Now though there isn't a smoking gun and direct evidence, there's a lot of indirect evidence that these people had inside information. Hamilton was their neighbor and friend, and he probably talked to them and chatted with them about his ideas," he says. "And you begin to see around 1789-1790 massive buying of these pieces of paper by some of the very names on Wall Street who got involved in this scandal. Well, when that profit-making venture broke and speculation took over, the people who came in on the backside of all that lost a lot of money."

Mr. Wachtel says this scenario invariably provoked cries for tighter federal laws governing Wall Street from another famous street -- Pennsylvania Avenue in Washington, D.C. -- the seat of the U.S. government. But he says that each time a scandal occurs, Wall Street manages to convince the markets and the politicians that it can monitor itself.

"A group of 24 individuals got together in 1790 and created the first legal instrument for the governance of Wall Street and brokering. They did so because the State Legislature of New York was considering abolishing and banning all buying and selling of financial paper," says Mr. Wachtel. "To head that off, they got together and formed what was called the Buttonwood Agreement. There's a mythology that they met under a Buttonwood Tree on Wall Street. And they constructed this agreement in which [they] argued that they would become a self-regulating, private organization and they would warrant the fidelity and trust and confidence of their dealings with the outside world."

This lasted until 1934 when the first modest regulation of Wall Street occurred under the federal Securities and Exchange Act. Mr. Wachtel says that even today, Wall Street insists that it is responsible enough to govern itself. For example, until huge recent scandals involving corporate giants like Enron, WorldComm and Tyco emerged, the corporate accounting industry argued that it could police itself better than the U.S. government.

Mr. Wachtel believes this cycle of infatuation with and betrayal by Wall Street is part of an ongoing cycle, and that there's little to stop it. "This argument of Wall Street being the private, self-regulated entity fighting with Pennsylvania Avenue, the other great street in this drama, which represents the public governors of the country, is one that continues," he says. "And the third great street in the story is Main Street, individual citizens, who usually get seduced into the Wall Street schemes and plots and drama, but typically do so in a way in which they're always at the bottom end of the food chain."

Mr. Wachtel argues in his book that a more independent, aggressive federal body is needed to protect individual investors from the cagey, self-perpetuating ways of Wall Street.