In response to the financial crisis that began in 2007, the government began to bail out banks deemed "too big to fail." Critics of this action argued that this would create the prospect of future bailouts and encourage banks to be fiscally irresponsible in the future. This illustrates

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The criticism of the government bailouts creating the prospect of future bailouts and encouraging banks to be fiscally irresponsible in the future is an example of the moral hazard problem. This occurs when individuals or institutions engage in riskier behavior because they are aware that someone else will bear the cost of their actions. In this case, banks may take on more risk because they believe the government will bail them out in the future.

In Response to the Financial Crisis That Began in 2007