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Better People, Not Just Better Rules March 26, 2009

Posted by Dwight Furrow in Current Events, Dwight Furrow's Posts, Ethics, Political Philosophy.
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On Thursday, Treasury Secretary Geithner outlined his plans for re-regulating the financial system in order to avoid future economic calamities like the one we are experiencing.

His proposal includes more government oversight of risk-taking in financial markets and tighter control of financial institutions, especially regarding how much capital they must hold as a buffer against losses.

This, of course, entails a significant expansion of the power of government regulators.

No doubt these regulations are necessary. But they are not sufficient.

After all, the Federal Reserve under Alan Greenspan could have imposed tighter lending standards on institutions or higher interest rates to slow down the growth of the housing bubble without any change in regulations. And the SEC already had the authority to raise capital requirements for banks.

Any of these moves would likely have prevented the credit crisis. But none of these steps were taken.

The problem was not that the rules were not good enough; rather the people charged with implementing the rules didn’t think regulating the private sector was important. They believed the government should not exercise oversight despite the fact that it was their job to do so. The theory that government was an unfortunate obstacle to economic activity drove the zeal to deregulate, but more importantly, it influenced the behavior of officials charged with the task of regulation. It was ideology and its influence on the motives of individuals, not the presence or absence of rules and procedures that caused the collapse in our financial markets.

This is why I argue that we should stop thinking of political ideologies as competing ways of organizing society, and instead think of them as prescribing competing constellations of motives for acting.

We need better motivated people; not just better formulated rules. And that requires moral change, not just political change.

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