Legislation Cannot Replace Ethics in Regulatory Reform
A. David Austill

Abstract
After one considers all of the technical reasons for the economic melt-down and the collapse of large financial institutions, one is left with some basic conclusions. Perhaps the failure was human; the will to be unethical in ignoring those basic moral and ethical obligations to stakeholders, professional societies, and the public was stronger than legal and regulatory restraints placed on those who collectively caused the crisis. To be sure, there were failures in maintaining statutory or administrative rules and in Congressional oversight and regulatory supervisory process. Even in the absence of adequate rules and governmental supervision, firms in the financial and mortgage lending industries still maintained the ethical requirements of corporate social responsibility. Furthermore, corporate managers, directors, and employees, who were agents of those very firms, owed ethical duties to their firms, owners of those firms, and to society that trusted all of them to do right. In passing the Dodd-Frank Act of 2010, Congress has beefed up regulatory requirements and oversight of mortgage lenders, large financial institutions, and hedge funds. This paper discusses the ethical lapses within the financial industry, the failure of governmental oversight, and some specifics of Dodd-Frank. It reviews the favorable provisions and shortcomings of the new legislation and asks whether the legislation will be effective. Without ethics of the players, it probably will not be effective in the end.

Full Text: PDF