Moral OHazard

clipped from econlog.econlib.org The above segment is interesting in so many ways. First, as noted, in the first paragraph, Obama seems to be advocating federal usury laws. It was usury laws in California in the early 1970s that prevented me from getting a credit card with a limit of even $250. Second, Obama seems to be saying that high interest rates are the problem. Most people have thought that the bubble was due to low interest rates. Third, Obama seems not to understand, or maybe care about, moral hazard, as his toaster analogy shows. If your getting overextended on your credit cards means that you're not protected, you're less likely to get overextended on your credit cards. Consistent with that lack of understanding of moral hazard, in laying out, fairly well, actually, how AIG got in a heap of trouble, Obama never said a word about the fact one reason AIG could take such risks is that politicians like Obama and McCain would bail them out if things went bad.