Home
/
RELIGION & LIBERTY ONLINE
/
Dodd-Frank: Regulation Cannot Build Character
Dodd-Frank: Regulation Cannot Build Character
Apr 6, 2026 11:31 AM

Dodd-Frank regulations, originally scheduled to take effect on July 16, are intended to create market stability. Instead, they are doing just the opposite.

Regulations aimed at financial derivatives, incorporated into the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law last July, have recently been rescheduled to take effect on December 31. The regulations are aimed at reducing the risk of derivatives, a contentious issue among those debating the root cause of the financial crisis. A Reuters’ report suggests this legislation will create uncertainty and a legal void for the derivatives market. Fears that trades could be challenged or invalidated may send the market for swaps (over-the-counter derivatives) into “legal limbo,” according to NASDAQ News.

Scott O’Malia, missioner of the Commodity Futures Trading Commission, told Reuters,

I have concerns that this proposal will not provide the appropriate level of legal certainty, and if it is to last only a few months, will likely only serve to further confuse and frustrate the markets and market participants.

Legal delays and uncertainties are only a small part of a much larger problem. Saturated with 2,253 pages of confusing regulation, Dodd-Frank is considered to be the most drastic financial revision in 80 years.

Former U.S. Senator Judd Gregg, now an adviser to Goldman Sachs, says Dodd-Frank goes too far for our good. He argues the regulation will hurt job creation and smother economic growth:

The consequences will be a massive transfer of economic activity overseas and an equally massive contraction in the liquidity and credit that keeps U.S. petitive and vibrant.

Though intended to stabilize the financial market, Dodd-Frank is creating more uncertainty and instability at our liberty’s expense. Regulation will petition and stifle individual freedom. In an attempt to correct the immoral behavior on Wall Street, the government promising the dignity of the individual by reducing financial choices.

In mentary titled “Credit Crunch, Character Crisis,” Samuel Gregg, the Director of Research at the Acton Institute, discusses the financial and moral costs of similar risk-controlling regulation in the past:

A longer-term problem is that this failure may facilitate calls for more financial regulation, much as the Sarbanes-Oxley Act was a response to America’s 2000-2001 corporate scandals. The evidence is growing that Sarbanes-Oxley has proved extremely costly for business. Even Sarbanes-Oxley’s authors now concede many of its provisions were badly drafted.

According to a University of Pittsburgh study, Sarbanes-Oxley’s discouragement of prudent risk-taking and its generation of pliance-costs have contributed to many firms listing themselves in the City of London rather than Wall Street. This has also been facilitated by Britain’s Financial Services Authority’s shift away from Sarbanes-Oxley-like procedural approaches to financial regulation, towards principles-based regulation which focuses on (a) the behavior reasonably expected from financial practitioners and (b) good es.

In the end, however, no amount of regulation — heavy or light — can substitute for the type of character-formation that is supposed to occur in families, schools, churches, and synagogues.

These are the institutions (rather than ethics-auditors and business-ethics courses) which The Wealth of Nations’ author, Adam Smith, identified as primarily responsible for helping people develop what he called the “moral sense” that causes us to know instinctively when particular courses of action are imprudent or simply wrong — regardless of whether we are Wall St bankers or humble actuaries working at securities-rating agencies.

Perhaps the recent financial turmoil will remind us that sound financial sectors rely more than we think upon sound moral cultures.

Gregg’s economic and moral analysis suggests regulation cannot build character. The implicit goal of Dodd-Frank is to achieve moral ends on Wall Street through coercive means — expanding government oversight. We must remember virtue cannot be artificially manufactured by increased regulation; rather virtue requires freedom to choose the proper course of action. Moral character in the business world should be encouraged by a proper incentive structure, but even more importantly by the values taught in our social institutions.

Comments
Welcome to mreligion comments! Please keep conversations courteous and on-topic. To fosterproductive and respectful conversations, you may see comments from our Community Managers.
Sign up to post
Sort by
Show More Comments
RELIGION & LIBERTY ONLINE
European foreign aid caught between dishonesty and incompetence
International aid groups have criticized the EU and many of its member states for falling behind their promises to step up foreign aid to 0.5 per cent of GDP by 2010 and 0.7 per cent by 2015. On the one hand, these groups are right to expose the accounting tricks governments use in order to promote themselves as saviors of Africa. On the other hand, the aid groups should consider very carefully whether their focus on state aid is really...
Budget hero
A good hump day timewaster: APM’s Budget Hero. Try to achieve the national security, efficient government, and economic stimulus badges all at the same time. I couldn’t on my first try, although I admit I was leaning much more heavily on the “efficient government” side of the ledger. Plus there were all the built-in biases to deal with… ...
Is this capitalism?
Is this supposed to be capitalism? Geoff Colvin writes that a motivating factor in the recent crash in corporate profits, as well as the sharp decline in home values, was the phenomenon that “people began to believe that the more they borrowed, the better off they would be. Their thinking went like this: With the cost of capital so low and asset prices rising steadily, risk was evaporating.” The precipitating cause of the downturn was that consumers “began to live...
A papal challenge to globalization
While we await Pope Benedict’s first social encyclical, it has been interesting to note what he has been saying on globalization and other socio-economic issues affecting the world today. None of these amounts to a magisterial statement but there are nonetheless clues to his social thought. So that makes his address to the Centesimus Annus pro Pontifice Foundation noteworthy. The Pope spoke about the current state of globalization, reminding the audience that the aim of economic development must serve the...
Looking for happiness, finding faith
Dr. Arthur C. Brooks spoke about “happiness” at an Acton Lecture Series event last week. Dr. Brooks, a professor of Business and Government Policy at Syracuse University and a visiting scholar with the American Enterprise Institute, presented evidence which suggests that religion is the greatest factor in general human happiness in the United States. Religion, argues Dr. Brooks, is essential to human flourishing in the United States and public secularism should be strongly guarded against by everyone – religious or...
Archbishop of York on secularization & religious compassion
The Archbishop of York Dr. John Sentamu has some ments passion and consumerism in this BBC article. The Church of England leader is fearful that religious charity passion is being crowded out and under utilized. “Human rights without the safeguarding of a God-reference tends to set up rights which trump others’ rights when the mood music changes,” he says. The Archbishop also criticized calls for removal of religion from the public square, saying it would usher in rampant consumerism. You...
A statue of ‘Liberty’ for India
The BBC is reporting that the Indian state of Maharashtra plans to construct a statue on an artificial island off the coast of Bombay (HT: Zondervan>To the Point). “The statue will be of the Maratha warrior king Shivaji, considered a hero in Maharashtra for his defiance of Mughal and British forces.” The officials apparently have in mind a rival for the American Statue of Liberty: “Vishal Dhage, a state government official, said the statue would be about the same height...
Assumptions about the ‘Libertarian’ Jesus
Here’s the key assumption in Michael Gerson’s piece from last week, “The Libertarian Jesus”: passion cannot replace Medicaid or provide AIDS drugs to millions of people in Africa for the rest of their lives. In these cases, a role for government is necessary passionate — the expression of mitments to the general welfare and the value of every human life. passion certainly could do this, and much more. Private giving generally dwarfs government programs in both real dollars and effectiveness....
Intellectual foundations of evangelicalism
In an interview promoting his recent book Faith in the Halls of Power: How Evangelicals Joined the American Elite, D. Michael Lindsay, describes what he sees to be the intellectual sources of evangelicalism: And the interesting thing is that the Presbyterian tradition, the Reformed tradition, has provided some of the intellectual gravitas for evangelical ascendancy. And it’s being promulgated in lots of creative ways so that you have the idea of Kuyper or a mission of cultural engagement is being...
Warming wailing waning
Sometime Acton publications contributor and adjunct scholar Thomas Sieger Derr posts on the First Things blog under the title, “The End of the Global Warming Scare?” Derr identifies a trend that has not been ignored on this blog: increasingly vocal and widespread skepticism toward at least the most dire predictions emanating from the climate change disaster crowd. I would add to Derr’s observations that consternation over oil prices is likely to encourage reluctance to implement any costly programs that have...
Related Classification
Copyright 2023-2026 - www.mreligion.com All Rights Reserved