Source: EconLog
by Scott Sumner
“I am continually amazed at the amount of nonsense that I’ve been reading on the subject of moral hazard. Here are a few examples: 1. Moral hazard played no role with SVB because the shareholders and bondholders were wiped out. (nonsense) 2. Moral hazard isn’t an issue because average people don’t think about the safety of a bank when making deposits. (nonsense) 3. Moral hazard isn’t an issue because average people are unable to evaluate the risk of various banks. (wrong) 4. A run on bank deposits could cause a recession. (wrong) If you see anyone making the first two arguments above, just stop reading. They literally do not know what moral hazard is.” (03/15/23)
https://www.econlib.org/the-wrong-way-to-think-about-moral-hazard/