Moral hazard
When someone takes bigger risks because they know someone else will absorb the damage if it goes wrong.
In plain English
When someone takes bigger risks because they know someone else will absorb the damage if it goes wrong.
Moral hazard is the bad incentive created by a safety net. If a bank believes the government or central bank will rescue it, it has every reason to gamble harder: it keeps the winnings, the public eats the losses.
It's why bailouts are so controversial. Saving a failing institution can calm a crisis today while teaching everyone to take wilder risks tomorrow.
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