Tuesday, October 13, 2009

Being a Moral Hazard

"Moral hazard is the fact that a party insulated from risk may behave differently from the way it would behave if it would be fully exposed to the risk. In insurance, moral hazard that occurs without conscious or malicious action is called morale hazard...Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its doings, and therefore has a tendency to act less carefully than it alternately would, leaving another party to hold some responsibility for the consequences of those actions. " (Wikipedia)

Wall Street banks and insurance companies (think Goldman Sachs, Bank of America, City Bank, and AIG) have become moral hazards. The question is what are we going to do about it?


septembermom said...

Their immunity from accountability has to stop now. They need a watchdog to keep them in line. Another item for our country's to do list.

Judith Ellis said...

We have a watchdog. Elizabeth Warren, the Harvard law professor, was appointed by Congress to oversee the bailout funds. The committee which she heads has Democrats and Republicans. They do not seem to agree on what needs to be done. Warren advocates for the middle class and it seems that some of the committee members are against this.

Warren has gone right to the public on many occassions and recently appeared on Dr. Phil. Maybe this will wake some Americans up to what's actually going on. But Politico reports that "financial services lobbyists, who’ve long disliked Warren for highlighting predatory lending and abusive credit card fees, argue that she’s using her post to push her own, anti-industry agenda."