Today we learn a new word. Moral-hazard. Well really it’s two words but don’t get distracted. Listen up! You already owe the nanny-state about $200K, and you ain’t got no co-signer.
The term, “moral hazard”, is an insurance term. It works like this. Suppose every time someone asks you to borrow ten bucks you say, “sure, no prob”. You’d be broke all the time, sure, but hey, let’s face it, you’d never have a shortage of friends, right?
Then a couple of patsies come along willing to insure your loans cheap! Their names are Fred and Fan; but that’s not important right now. They make a deal with you. They sell you a policy on your loans that pays you $20 if one of your friends defaults on a $10 loan. Who could pass on a deal like that? You only go around once in this life, right? Why not do it with gusto… or something like that.
In the insurance business, deals like this are appropriately known as moral hazards. It entices me, the insured, to be careless, even unethical maybe, because I will actually be better off if my friends don’t pay me back. Insurance companies who must meet payroll and pay the rent shy away from such foolishness. But there are some insurance companies that don’t have to worry about such pesky problems because they have their own patsies. That would be you, the tax payer.
So, if you’ve ever wondered how bankers could loan out money to anyone who could fog a mirror and still be around today to pour money into leftist political campaigns, now you know. They really never were in jeopardy of losing the money they loaned. You were. And that, for those making bad loans, was no prob.