Thursday, December 06, 2007

Moral Hazard

Bush to Outline 5-Year Rate Freeze Plan
By Patrick Rucker and John Poirier,Reuters
Posted: 2007-12-05 16:20:18

WASHINGTON (Dec.5) - President George W. Bush is expected to outline on Thursday a plan to freeze mortgage rates for five years for many U.S. homeowners facing sharp increases in their monthly payments, industry sources said on Wednesday


Moral hazard is a technical term defining situations where an actor -- who is insulated from some amount of risk, adopts a behavior that is riskier than would be normal for the actor. Example: A bicylist who starts wearing a helmut may begin to ride more agressively based on the assumption that the helmut will protect him in case of fall or collision.

Thanks to Bush, we will get to see moral hazard play out in the housing market (certainly, moral hazards are prevalent already, but now they will be closer to home -- pun intended).

See, I should have bought a bigger house on a teaser rate. But, at the time, I didn't know that Bush would be ready to save me from my poor financial decisions. Of course. I will not make the same mistake again. Thank you, good ol' Uncle Sam.

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