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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.

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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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