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The Archduke of (Moral) Hazard

Do you have a problem? Just admit it if you do — anything at all. Don’t waste time worrying about it. You can count on the practitioners of moral hazard to make it disappear. Or at least, to lay it on someone else’s shoulders. Almost the same, right?

“Moral hazard” is an insurance term that unfortunately isn’t quite as well-understood as it should be, probably because it’s not self-explanatory. Most people don’t encounter it in their daily lives and therefore have no idea what it really means. Can you imagine a network news anchor introducing a story with a line like: “And in a stunning example of moral hazard today, the Obama administration …” No? Me either. Yet instances of moral hazard seem to be multiplying daily, with profound potential implications for society and the future.

An article on Investopedia.com gives this definition of the term: “An idea that a party that is protected in some way from risk will act differently than if they didn’t have that protection.”

The basic idea is: You’re not fully responsible; someone else will cover you or pick up the tab. Say you’re a banker whose depositors’ money is guaranteed by Uncle Sam and you lose tons of that money gambling on highly leveraged derivatives.  Moral hazard. Say you’re a college student who takes his tuition money and blows it on a weekend in Vegas, knowing full well that daddy will make good on the bursar’s bill. Moral hazard. Say you don’t save much for retirement because you’re relying on “entitlement” programs to make up any shortfall. Moral hazard. Say you can’t afford the mortgage on the house you bought, but President Obama — the Archduke of moral hazard — says, “Don’t worry. I’ll make the banks swallow it.” Moral hazard. You want “free” contraceptives or day-after pills even though they cost money? No problem — someone else will be forced to pick up the tab!