by Mark Thoma, University of Oregon (Department of Economics)

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Commercial Banks, River Banks, and Moral Hazard

Posted on August 05, 2008

Jeff Frankel:Commercial Banks, River Banks, and Moral Hazard, Jeff Frankel: Quite a few economists are worried about moral hazard in financial markets. ...Of course moral hazard is a serious problem that lies close to the heart of the financial market crises. But I am not sure that I completely share the priority at this point on drawing a tougher line with the ex post bailouts. It may be futile advice. Fixing the hole in the roof when it is raining is, after all, rather difficult.Consider two other areas where moral hazard is an issue: commercial banks and river banks. Some economists would p...

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