Wednesday, March 30, 2011

One more quick post on moral hazard

Many of you have seen this post about moral hazard.  Once you are insured against risk, your risk-taking behavior changes.  In many ways, the evolving story of the financial crisis is one of increasing moral hazard.
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1 comment:

  1. Ankur JainApril 2, 2011 at 11:42 PM

    This post brings up a great point. When most people hear of moral hazard they think of Wall Street, big banks, and corporations. We normally think of them in context to their belief that the government wouldn't let them fail and would bail them out. The problem lies in the fact that not only corporations like Lehman Brothers, but also the American people got used to the idea that the government would take action and try to prevent failure from happening. I think there is equal blame to go around to big banks and the American people that made bad decisions and relied heavily on mortgages that they couldn't afford or living beyond their means with credit cards. The level of risk rose to a point because people thought the government would bail them out. Unfortunately, the incredible risk taken by Americans led to the impending failure of both the corporations and the risk takers respectively.

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