Moral Hazard and Financial Regulation

This news article was published in Savannah Morning News.

Moral hazard is an endemic feature of modern-day capitalist economies, and nowhere is the concept more poignant than within financial markets. The recent global financial crisis is but a recent example. Though the crisis has shown otherwise, I think the ripple effects of asymmetric risk sharing across financial institutions, firms and society can be mitigated. How? The rules of our financial apparatus must be clearer, and repercussions for breaking them must be harsher. Think of a recently insured driver becoming more erratic on the road as his cost of an accident has effectively been reduced...