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Moral Hazard

Moral hazard is the state in which individuals and corporations will take on increasing amounts of risk because they believe they will not face consequences for risky actions.

Expanded Definition

The concept of "moral hazard" has come to the forefront in 2008, given incidents like the Federal Reserve's orchestration of JP Morgan's purchase of Bear Stearns and the sub-prime lending crisis.

The concept of "moral hazard" comes into play when corporations are deemed "too big to fail" and bailouts occur.

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