When the government provides loan guarantees and in effect "socializes losses and privatizes gains" of a project or firm, it can lead to a

Question

Quizplus · Accepted Answer

When the government provides loan guarantees and socializes losses while privatizing gains, it creates a moral hazard problem among investors. This is because the investors may take on riskier investments since they know they will not bear the full losses in case of failure. This can lead to reckless behavior and poor decision-making, ultimately leading to greater losses for the government and taxpayers.

When the Government Provides Loan Guarantees and in Effect "Socializes