I am continually amazed at the amount of nonsense that I’ve been reading on the subject of moral hazard. Here are a few examples:
Moral hazard played no role with SVB because the shareholders and bondholders were wiped out. (nonsense)
Moral hazard isn’t an issue because average people don’t think about the safety of a bank when making deposits. (nonsense)
Moral hazard isn’t an issue because average people are unable to evaluate the risk of various banks. (wrong)
A run on bank deposits could cause a recession. (wrong)
If you see anyone making the first two arguments above, just stop reading. They literally do not
