Moral hazard and adverse selection problems increased in prominence in the 1980s

Question

Quizplus · Accepted Answer

The burst of financial innovation in the 1970s and early 1980s created new financial instruments and markets, which widened the scope for risk-taking and increased the likelihood of moral hazard and adverse selection problems. Deregulation of savings and loans and mutual savings banks required them to be more cautious, but this was not the primary cause of the increased prominence of these problems. The decrease in federal deposit insurance had some impact but was not the main driver. Interest rate decreases may have had some impact but were not directly related to these problems.

Moral Hazard and Adverse Selection Problems Increased in Prominence in the 1980s