Moral hazards in financial system

Loans and the Housing Bubble Burst A moral hazard in economics is where someone takes a encounter that they wouldnt normally take because they know that the consequences of that risk not paying off will be paid by somebody else. The case we will be discussing will be the housing bubble breach and it relates to the topic because lenders took great risks lending funds to people that could not afford it knowing their banks were too sorry to fail and he government would have to trammel them out.To begin this case we must first give a brief summary. After the dot. Com bubble burst of 2000 and the attacks on the US on September 11 the US economy was at a great risk of going into a recession. Central banks somewhat the world including our federal reserve tried to stimulate the economy by reducing interest rates. This made a lot of people see the chance to make money and they started taking on riskier investments like for example buying houses that they knew they couldnt afford hoping to flip it in a couple of years and make a great deal of money.Lenders saw this as an opportunity to make money as well by lending all this money but they did It with senior high school risk approving people with supreme credit that would normally never get approved for these loans. Consumers kept this trend going and every year more than and more supreme mortgages were being Initiated until 2006 when the housing bubble anally burst.The result was more foreclosures per year than had ever been seen before in the US and many lenders and hedge gold having to declare bankruptcy or need government ball outs. Moral hazards in financial system By caricaturing this as an opportunity to make money as well by lending all this money but they did it more supreme mortgages were being initiated until 2006 when the housing bubble need government bail outs.