moral hazzard

Jordan Hayes jmhayes at
Sun Nov 21 09:02:26 PST 1999

>From jordan Sun Nov 21 08:56:53 1999
To: kirsten Subject: Re: moral hazzard

Doug writes:

> "Moral hazard" is financial jargon for the unsound behavior
> encouraged by insurance: if you feel covered, you're more likely
> to be reckless. Works with debt forgiveness and indulgent bankruptcy
> laws, too: if you can file for bankruptcy with little sanction,
> then you're more likely to run up the credit cards.

This example shows a strange interaction between "private enterprise" (credit card companies), the government ("bankruptcy laws") and the consumer. The way I see credit card blowup, it ought to be purely a problem for the credit card companies. They continue to not deal reasonably with the art & science of risk management and so I think they deserve what they get (or don't get, as it were).

Remember when making a credit card transaction involved having the clerk at K-Mart look in a book that was printed and distributed *weekly* of problem accounts? It's gotten a little better since then, but not by much. Essentially they are handing out $100 bills to anyone they can find hoping that some will give back $110 and it will cover the cost of not being more discerning in their giving habits.

I'm not sympathetic in the slightest when they give it to someone who doesn't bring it back. They might as well be playing a slot machine.


More information about the lbo-talk mailing list