Well, yes. If you are bad, you want what's best for yourself. But if you know that the other guy is bad, then you know he wants what's best for himself. So you set up the rules of the game to ensure that he can't get what he wants without you also getting what you want.
See the prisoner's dilemma. If both people are bad, they will have the worst outcome. If either of them thinks the other is bad, then they will also be bad in order to protect themselves. So the best outcome (you are bad, and they are good) is impossible, because they know you're bad and will be bad themselves.
So two bad people have a good reason to write a law preventing them both from being bad, because that's the best outcome they can get for themselves.
That is assuming rational self interested actors and equal cost/benefit. We don't need to look very hard to find examples of irrationality and imbalanced incentives. Also, how many times have you been exhorted to act against your own interests and think of the children? The road to hell is paved with good intentions.
If these objections that you are raising were wrong, then we would live in a utopia. You're right that people fall short, but I think the point still stands that checks and balances can help overcome human unreliability, even if every human involved is unreliable. Just look at democratic institutions without checks and balances.
I'm actually a big fan of the competing interests concept, it is a very eloquent solution. Where it goes off the rails though is the combination of that concept and the involuntary surrender of individual sovereignty to the very same people with whom your interests compete.
See the prisoner's dilemma. If both people are bad, they will have the worst outcome. If either of them thinks the other is bad, then they will also be bad in order to protect themselves. So the best outcome (you are bad, and they are good) is impossible, because they know you're bad and will be bad themselves.
So two bad people have a good reason to write a law preventing them both from being bad, because that's the best outcome they can get for themselves.