Monday, December 22, 2008

This is the problem with bailouts

Bailouts create a moral hazard. This is an economic term meaning that invention may change the incentives so that people or companies will no longer do what is efficient.

The Wall Street Journal has an article about how developers want a bailout too.

The problem here is bailing out companies sets a precedent that allows for them to take bigger unnecessary risks because the government will act as a safety net if they fail.

No comments: