Please listen to this video while you read my transcription, correct it when possible,
Or complete the parts marked with XXXXXX's that I could undertand
http://www.youtube.com/watch?v=_SdtoKeFTi0
(English is not my language)
TRANSCRIPTION:
Imagine you bought an oldcar for 10.000 dollars
and you needed an insurance policy in case the car was stolen or damaged.
The insurance company would offer different rates depending on factors such as your driving record, level of coverage and size of the deductible, but all the insurance companies will agree in one
thing, none of them will insure you from more than the value of the car.
This is because companies understand something called MORAL HAZARD.
If you bought a car for 10.000 dollars, and could insure it for 20.000 dollars, you would have an incentive to set the car on fire or at least leave it in a bad neighborhood with the engine runing.
Companies understand that would be a risk fee for losing money
I am Nikki XXXXXX with the Independence Women's XXXXXXXX as part of the center for freedom and prosperity economics 101 series I am here to explain Moral Hazard and how goverment policies sometimes encourage foolish behaviour.
Let's use an example from the financial crisis...
You may have wondered why so many financial institutions were so XXXXXXXX about lending money to people with sketchy credit histories to buy overpriced houses.
In a geniune free market investors XXXXXX to lend money when there is a high probability that they wont get pay back, so what happend in recent XXXXXXXXXXX to convince bankers to make silly loans.
This is where we see the impact of goverment policy, particulary the pernicious roll of moral hazard caused by FannieMae and Freddie Mac, two goverment created entities, the politicians required this two goverment sponsored enterprises to buy packages of XXXXXX loans known as mortage XXXXXX securities in order to satisfy so called affordable lending requirements, this policy may have been motivated by a nobel idea of boosting home ownership but politicians were so anxious to buy XXXXX that they didn't bother to think about the risks of moral hazard.
Simply stated, Banks an other financial institutions quickly realized that they could make loans to just about anybody, collect the fee and then package all such loans together and transfer the risk of default to fannie and freddie xxx taxpayers like you and me.
This moral hazard meant that lenders could relax their standars and they did.
There are other moral hazard issues to consider including what happens when home buyers dont have to put xxxxxxxxxxxx because of goverment's subsidies, that means they have no xxxx in the
game and they dont suffer losses if they walk away from their mortage, this increases the risk of default
Another example is "Too big to fail in the financial sector".
If investors think that the goverment will bailout big institutions there less incentive to to engage in good xxxxx this creates the risk of new versions of fannie and freddie, ticking time bombs that will explode leaving tax payers to pay for the damage
The beauty of the free market is that it gives the people the chance to win big, but there is and old saying that capitalism without bankruptcy is like religion without hell
Risk taking generally is a good thing and is often a sign of a dinamic economy but subsidies risk creates the moral hazard, this is bad for tax payers and bad for the economy
I am Nikki XXXXX thank you again for watching this center from freedom and prosperity economics 101 video
Please spread the word
Answer by Kit cat
here u go ^_^
TRANSCRIPTION:
Imagine you bought an old car for 10.000 dollars
and you needed an insurance policy in case the car was stolen or damaged.
The insurance company would offer different rates depending on factors such as your driving record, level of coverage and size of the deductible, but all the insurance companies will agree in one
thing, none of them will insure you from more than the value of the car.
This is because companies understand something called MORAL HAZARD.
If you bought a car for 10.000 dollars, and could insure it for 20.000 dollars, you would have an incentive to set the car on fire or at least leave it in a bad neighborhood with the engine running.
Companies understand that would be a risk fee for losing money
I am Nikki Kurakawa with the Independence Women's Forum as part of the center for freedom and prosperity economics 101 series I am here to explain Moral Hazard and how government policies sometimes encourage foolish behavior.
Let's use an example from the financial crisis...
You may have wondered why so many financial institutions were so careless about lending money to people with sketchy credit histories to buy overpriced houses.
In a genuine free market investors are reluctant to lend money when there is a high probability that they won't get pay back, so what happened in recent years to convince bankers to make silly loans.
This is where we see the impact of government policy, particularly the pernicious roll of moral hazard caused by Fannie Mae and Freddie Mac, two government created entities, the politicians required this two government sponsored enterprises to buy packages of dodgy loans known as mortgage back securities in order to satisfy so called affordable lending requirements, this policy may have been motivated by a noble idea of boosting home ownership but politicians were so anxious to buy votes that they didn't bother to think about the risks of moral hazard.
Simply stated, Banks and other financial institutions quickly realized that they could make loans to just about anybody, collect the fee and then package all such loans together and transfer the risk of default to Fannie and Freddie i.e. taxpayers like you and me.
This moral hazard meant that lenders could relax their standards and they did.
There are other moral hazard issues to consider including what happens when home buyers don't have to put up a down payment because of government's subsidies, that means they have no skin in the
game and they don't suffer losses if they walk away from their mortgage, this increases the risk of default
Another example is "Too big to fail in the financial sector".
If investors think that the government will bailout big institutions there less incentive to to engage in good over sight this creates the risk of new versions of Fannie and Freddie, ticking time bombs that will explode leaving tax payers to pay for the damage
The beauty of the free market is that it gives the people the chance to win big, but there is an old saying that capitalism without bankruptcy is like religion without hell
Risk taking generally is a good thing and is often a sign of a dynamic economy but subsidies risk creates the moral hazard, this is bad for tax payers and bad for the economy
I am Nikki Kurakawa thank you again for watching this center from freedom and prosperity economics 101 video
Answer by Dyne Arienne
I marked the edits (including correction for the spelling/typo errors, and punctuation) with a *.
===========
Imagine you bought an *old car for *10,000 dollars and you needed an insurance policy in case the car was stolen or damaged.
The insurance company would offer different rates depending on factors such as your driving record, level of coverage and size of the deductible*. *But all the insurance companies will agree *on one thing, none of them will insure you *for more than the value of the car.
This is because companies understand something called MORAL HAZARD.
If you bought a car for *10,000 dollars, and could insure it for *20,000 dollars, you would have an incentive to set the car on fire or at least leave it in a bad neighborhood with the engine *running.
Companies understand that would be a *recipe for losing money.
I am Nikki *Kurokawa with the *Independent Women's *Forum. As part of the *Center for *Freedom and *Prosperity's *Economics 101 *Series*, *I'm here to explain Moral Hazard and how *government policies sometimes encourage foolish behaviour.
Let's use an example from the financial crisis...
You may have wondered why so many financial institutions were so *careless about lending money to people with sketchy credit histories to buy overpriced houses.
In a *genuine free market*, investors *are reluctant to lend money when there is a high probability that they *won't get *paid back*. *So what *happened in recent *years to convince bankers to make silly loans?
This is where we see the impact of *government policy, *particularly the pernicious *role of moral hazard caused by FannieMae and *FreddieMac, two *government-created entities*. *The politicians required *these two *government-sponsored enterprises to buy packages of *dodgy loans known as *mortgage-backed securities in order to satisfy *so-called affordable lending requirements*. *This policy may have been motivated by a *noble idea of boosting home ownership*, but politicians were so anxious to buy *votes that they didn't bother to think about the risks of moral hazard.
Simply stated, *banks *and other financial institutions quickly realized that they could make loans to just about anybody, collect the fee and then package all such loans together and transfer the risk of default to *Fannie and *Freddie *i.e. taxpayers like you and me.
This moral hazard meant that lenders could relax their *standards and they did.
There are other moral hazard issues to consider including what happens when home buyers *don't have to put *up a down payment because of *government subsidies*. *That means they have no *skin in the game and (deleted don't) *don't suffer losses if they walk away from their *mortgage. *This increases the risk of default*.
Another example is "Too big to fail in the financial sector".
If investors think that the *government will *bail out big institutions*, there *is less incentive (deleted to) *to engage in good *oversight*. *This creates the risk of new versions of *Fannie and *Freddie, ticking time bombs that will explode*, leaving *taxpayers to pay for the damage*.
The beauty of the free market is that it gives *people the chance to win big, but *there's *an old saying that *"Capitalism without bankruptcy is like religion without hell"*.
Risk taking generally is a good thing and is often a sign of a *dynamic economy, but *subsidised risk creates *a moral hazard*. *This is bad for *taxpayers and bad for the economy*.
I am Nikki *Kurokawa*, thank you again for watching this *Center *for *Freedom and *Prosperity *Economics 101 video.
Please spread the word*.
Add your own answer in the comments!
Orignal From: Did I make a good transcription of this video?
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