Is Moral Hazard Always Immoral?


Emilia Klepczarek


5th edition (2014/2015)


Banks / Moral hazard

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The fundamental questions about the moral hazard

“Moral conduct is the oil of the social machinery. It reduces the in-evitable frictions and pushes the social life ahead , without spoiling the social machine,” said Witwicki (1957), the 20th century Polish phi-losopher. Half a century later, the course of social life was severely dis-rupted by the global financial crisis, the causes of which have been pri-marily attributed to so-called moral hazard, or “a temptation to abuse” in Polish literature discussing the crisis.. The concept, apparently de-monstrating associations with the abuse in the banking sector, carries strongly negative connotations, and any action linked to moral hazard is seen as unquestionably immoral. No wonder that today’s academic, busi-ness or political discussion increasin-gly addresses the methods of com-bating this main antagonist of the global downturn; which, as a kind of modern Pandora’s box, has paved the way for shady practices and defective mechanisms to penetrate the global financial market.

It seems, however, that in the heat of a discussion on how to deal with moral hazard, certain funda-mental questions are overlooked which should be taken as a starting point for any further debate. What does moral hazard actually mean? Whom does it concern?

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