Posts tagged with: Wall Street Reform and Consumer Protection Act

Blog author: kjayabalan
posted by on Thursday, February 9, 2012

Following my blog post and Acton News and Commentary piece “Obama vs. the Catholic Bishops,” I’d like to draw your attention to two Wall Street Journal editorial page articles in today’s edition that also criticize the bishops for their political and economic naivete.

WSJ columnist Daniel Henninger writes:

Politically bloodless liberals would respond that, net-net, government forcings do much social good despite breaking a few eggs, such as the Catholic Church’s First Amendment sensibilities. That is one view. But the depth of anger among Catholics over this suggests they recognize more is at stake here than political results. They are right. The question raised by the Catholic Church’s battle with ObamaCare is whether anyone can remain free of a U.S. government determined to do what it wants to do, at whatever cost.
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With the transformers, it never stops. In September, the Obama Labor Department proposed rules to govern what work children can do on farms. After an outcry from rural communities over the realities of farm traditions, the department is now reconsidering a “parental exemption.” Good luck to the farmers.

The Catholic Church has stumbled into the central battle of the 2012 presidential campaign: What are the limits to Barack Obama’s transformative presidency? The Catholic left has just learned one answer: When Mr. Obama says, “Everyone plays by the same set of rules,” it means they conform to his rules. What else could it mean?

Anyone who signs up for more of this deal by assuming that it will never force them to fall into line is getting what they deserve.

And here’s University of Chicago professor John Cochrane:

Our nation is divided on social issues. The natural compromise is simple: Birth control, abortion and other contentious practices are permitted. But those who object don’t have to pay for them. The federal takeover of medicine prevents us from reaching these natural compromises and needlessly divides our society.

The critics fell for a trap. By focusing on an exemption for church-related institutions, critics effectively admit that it is right for the rest of us to be subjected to this sort of mandate. They accept the horribly misnamed Patient Protection and Affordable Care Act, and they resign themselves to chipping away at its edges. No, we should throw it out, and fix the terrible distortions in the health-insurance and health-care markets.

Sure, churches should be exempt. We should all be exempt.

Both articles claim that the Catholic bishops were exclusively and overly concerned with getting exemptions for Catholic institutions and did not adequately focus on the larger political and economic problems brought on by Obamacare and the entitlement state in general, i.e. a growing dependence on the state and a convoluted tax code that attempts to direct our individual choices towards “socially optimal” ends, regardless of the inevitable, unintended consequences.

Henninger also points out that the bishops initially opposed Obamacare because of the threat of federal funding of abortion, which ought to make one wonder: Are the bishops capable of applying the principles of Catholic social teaching beyond the obvious “non-negotiable” issues of Catholic teaching (abortion, euthanasia, embryonic stem-cell research, etc.) and speaking coherently, intelligently and persuasively on prudential matters that are still of great political importance? Should they? Or should this be the responsibility of the Catholic laity, who may be better formed in politics and economics but lack the authority of episcopal office?

In my opinion, these are open and difficult questions that require us to think more seriously about the role of Catholic leadership in a liberal democratic society.

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, a commissioner 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. business competitive and vibrant.

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

In a commentary 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 additional compliance-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 outcomes.

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.