Home
/
RELIGION & LIBERTY ONLINE
/
Dodd-Frank: Regulation Cannot Build Character
Dodd-Frank: Regulation Cannot Build Character
Jan 1, 2026 1:06 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
A ‘Reality Economics’ View of Entrepreneurship
This week I’m attending Mises University, one of the largest and most rigorous summer courses in the Austrian School of economics (or “reality economics,” as my friend Michael McKay likes to call it). Among the various lectures, there was one in particular that struck me as particularly relevant to the work of the Acton Institute. Peter Klein, professor of economics at the University of Missouri, delivered a presentation on entrepreneurship, a large part ofthe focus of his academic work. Dr....
Privacy and Public Persons
This week’s Acton Commentary from Rev. Gregory Jensen, “Finding the Balance: Privacy and the Civil Society,” is a thoughtful reflection on the place of privacy in our modern life. I have recently made the claim that public persons, such as police officers and politicians, have a somewhat different claim to privacy than private persons. This was especially in the context of controversy over the legality of videorecording police officers while on the job. Gizmodo follows up on a previous item...
Work, Globalization, and Civilization
In this week’s Acton Commentary, “Lutheran World Federation Misses the Mark on Work and Wealth,” I reflect on the recently concluded general assembly of the Lutheran World Federation, held in Stuttgart. The theme of the meeting was “Give us today our daily bread,” but as I note, the assembly’s discussion of hunger, poverty, and economics lacked the proper integration of the value, dignity, and importance of work. As I contend, work is the regular means God has provided for the...
Religious Development
Bill Easterly has a brief reflection on the role of religion in global societies, a role that must be taken into account by development ‘experts.’ Speaking of his experience at an Anglican worship service in Ghana: I think it’s something about how to understand people’s behavior, you need to understand how they see themselves. A good guess is that the people in the congregation this morning, in one of the poorest regions of Ghana, do NOT see themselves primarily as...
Democrat Outreach to Religious Left ‘Aggressive’ and ‘Not Diminishing’
Compared to the Republican Party, the Democrats’ embrace of politicized religion came late. And because Democrats have only in the last 5-6 years learned how to do the God talk (thanks in large part to the efforts of Jim “The Prophet” Wallis) they can be excused as greenhorns when they whine about not getting the Church folk more mobilized for blatantly partisan efforts. But it is really annoying when those in the pews don’t go the extra mile, isn’t it?...
Rev. Sirico: The Moral Basis for Economic Liberty
As part of its First Principles series in Political Thought, the Heritage Foundation has published The Moral Basis for Economic Liberty by the Rev. Robert A. Sirico, president and co-founder of the Acton Institute. You can read the paper online or download as a PDF. Abstract: Today, those who defend free markets and capitalism often do so solely on managerial or technical grounds, but economic liberty needs a moral defense as well. Defense of economic liberty without reference to morality...
Free and (Mostly) Virtuous Links
Mark Tooley follows the Prophet Wallis as he descends from the heavens in a fiery chariot, with trumpets and shouts, and goes among our youth at Wisconsin’s Lifest in The Pearly Gatecrasher. Physicists close in on the “God particle” (how small they make Him) but worry about sensitivities surrounding the name. Says one of the particle chasers: “It embarrasses me. Although I am not a believer myself, it’s a misuse of terminology that might offend some people.” Reason.tv Editor in...
Humans are not Economic Automata
Courtesy Evangelical Outpost and the always-interesting 33 Things, here’s a video on the strangeness of the economics of incentives and punishments: The lesson here is that people in real life, body and soul, are not simple rational economic actors who respond only to material realities. We exist in the context of social webs and relationships. But we also have non-material faculties; consciences, free choice, creativity, speculative reason. Homo economicus is useful as a partial model of human behavior, but it...
Acton on Kindle
Acton Institute has an eBook initiative underway and today we launch the first title on Amazon Kindle: Lester DeKoster’s “Work: The Meaning of Your Life.” Get yourself to the Kindle store to purchase this Christian’s Library Press work for $3.99 or to download a free sample. Soon to be added to the Kindle store is Jordan Ballor’s Ecumenical Babel, now available in hardcover from the Acton Book Shoppe and Amazon. Excerpt from “Work: The Meaning of Your Life” by Lester...
Re: Gregg on Gold
In a recent post Dr. Sam Gregg outlined several arguments in the casefor returning to some kind of gold modity-based monetary system. One of the advantages to modity standard, Dr. Gregg argues, is that it “placed a high premium on economic security by reducing the uncertainty and risk that flows from fluctuations in the value of money that have nothing to do with the relative valuation of different goods and services.” One of the main determinants of trust in a...
Related Classification
Copyright 2023-2026 - www.mreligion.com All Rights Reserved