When the government bails out failing banks, it creates a moral hazard problem; but when the
government bails out homeowners who are defaulting on their mortgages, there is no moral hazard
problem.

Question

Quizplus · Accepted Answer

Bailing out homeowners who are defaulting on their mortgages can create a moral hazard problem because it incentivizes irresponsible borrowing and lending practices in the future, as people may assume the government will always bail them out.

When the Government Bails Out Failing Banks, It Creates a Moral