Posts tagged Moral hazard
What caused the 2008 worldwide economic collapse? I don’t really know, and I don’t think anyone has The Ultimate Answer. We’ve all heard bits and pieces, we’ve all heard arguments, and there have been pundits and politicians who have made claims of perfect knowledge. Let’s have a discussion about what we know and what we think.
Here’s something I recently learned. The $1.7 trillion in sub-prime mortgage loans is often held up as one (perhaps the major) contributing factor. It pales into insignificance beside the unregulated $600 trillion derivatives market, of which those mortgages amounted to less than three tenths of one percent.
Okay, your eyes are about to glaze over. I can see it from here. Hang in there. (more…)
I’ll admit it…I support personal responsibility. I don’t want to pay for the irresponsible actions of others. I want people to succeed or fail based on the merits of their actions.
It all makes me sound like a Republican, doesn’t it?
See, the problem with people being able to collect on success while not having to pay for failure is that it creates what’s called a “moral hazard”. People behave differently when they have little or nothing to lose, and much to gain. (more…)