Home
/
RELIGION & LIBERTY ONLINE
/
Dodd-Frank: Regulation Cannot Build Character
Dodd-Frank: Regulation Cannot Build Character
Dec 26, 2025 4:00 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
Vatican Releases Note on Global Financial Reform
This morning the Pontifical Council for Justice and Peace issued a bold statement advising how to bring order to the global financial crisis. I was in attendance at the much anticipated press conference that was organized to debrief reporters on the statement’s content. The statement came in the form of a “Nota” (“Note” in Vatican terms): Towards Reforming the International Financial and Monetary Systems in the Context of Global Public Authority. The President and Secretary of the Council, together with...
Marxism, Abortion among CCHD’s Poverty Strategies
The American Life League has released an investigative report on the United States Catholic Conference of Bishops’ Catholic Campaign for Human Development, which, it turns out, has been funding dozens of thoroughly unchristian organizations in its fight against domestic poverty. Catholics in the pews who have given to the annual CCHD collection might not be happy to learn that the program’s efforts are frequently right out of line with its “fight poverty: defend human dignity” slogan. At Acton, we believe...
Nothstine on Occupy Wall Street’s Utopian Aims
New polling data on the Occupy Wall Street protesters (HT: blog) shows that the “movement” isn’t exactly representative of America’s downtrodden: Rather, prises an unrepresentative segment of the electorate that believes in radical redistribution of wealth, civil disobedience and, in some instances, violence. Half (52%) have participated in a political movement before, virtually all (98%) say they would support civil disobedience to achieve their goals, and nearly one-third (31%) would support violence to advance their agenda. The vast majority of...
Commentary: Rome and Moscow Make Common Cause
With Europe’s traditional moral framework – Christianity – under increasing attack, the Roman Catholic and Russian Orthodox churches are drawing closer in order bat the forces of secularism and “Christophobia.” Rev. Johannes L. Jacobse looks at efforts to set aside long held theological disputes and forge a unity of action on social questions. Subscribe to the free weekly ANC and other Acton publications here. +++++++++ With the Rise of Militant Secularism, Rome and Moscow Make Common Cause By Rev. Johannes...
Taxes Yesterday, Today, and Tomorrow
Amid the hustle and bustle of preparing for tonight’s Acton Institute annual dinner, I’m trying to carve out some time to make final preparations for my participation in the 9th Annual Christian Scholars’ Symposium hosted by the Christian Legal Society. Tomorrow afternoon I’ll be debating with Gideon Strauss of the Center for Public Justice on the question, “Justice, Poverty, Politics & the State: Is There a Christian Perspective?” One of the pressing issues related to the size and scope of...
Samuel Gregg: Two Useful Moments in Last Night’s Debate
Acton’s director of research Samuel Gregg’s reaction to last night’s GOP presidential debate is up at NRO’s The Corner. Like most people who saw the debate, he didn’t like the childish bickering, of which he says “the trivializing effects upon serious discussion are hard to deny.” “There were, however, two useful moments,” he says: One was several candidates’ efforts to put the contemporary disease of identity politics in its appropriate place (i.e., the grave). The second was a number of...
The Pope and The CEO
Our good friend at the Seven Fund (and Acton Research Fellow in Entrepreneurship) Andreas Widmer, has released his book, The Pope and the CEO. Andreas tells stories of his journey from a Swiss Guard for John Paul II to an entrepreneur and business leader. Andreas tell of lessons he learned from the life and leadership of John Paul II that have shaped his life, his family, and his vision of work. The book is filled with practical advice from working...
Jim Wallis Speaks to Grand Rapids’ Aged
Jim Wallis, the author, public theologian, speaker, and mentator behind the Christian Left’s Circle of Protection, was in Grand Rapids last night, and I went to hear him speak. Wallis was presented as the latest in a long line of progressive luminaries to speak (or play their guitars) at the Fountain Street Chruch: Eleanor Roosevelt, Clarence Darrow, Margaret Sanger, Malcolm X, Gloria Steinem, U2, and the Ramones have all appeared on the same dais. He was introduced to speak about...
Vatican Economic Analysis Incomplete, Says Gregg
Acton’s director of research Samuel Gregg has provided his reasoned take on the new document from the Pontifical Council for Justice and Peace — it’s up at The Corner. While its diagnosis of the world economy is fairly accurate, the council’s treatment plan is lacking in prudential analysis. Gregg’s disappointment is expressed at the end: “For a church with a long tradition of thinking seriously about finance centuries before anyone had ever heard of John Maynard Keynes or Friedrich Hayek,...
EU Regulation Makes its Way to the US
The aggrandizement of the European Union’s powers, particularly of its regulation, has had a steadygrowth within Europe, and is now looking to move outside European borders. Namely in one American industry, the airline industry, passengers may soon be paying higher air fares, not because of factors within the American financial market, but because of a carbon emissions tax that the EU will be imposing on American airlines which service flights to EU member countries. For example, if an American carrier...
Related Classification
Copyright 2023-2025 - www.mreligion.com All Rights Reserved