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

Question

Quizplus · Accepted Answer

Bailing out homeowners who are defaulting could also create a moral hazard problem where it incentivizes people to take out mortgages they cannot afford in the expectation that the government will bail them out in case of default.

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