Moral hazard

After the mortgage disaster in 2007 many banks were deemed too big to fail and congress passed legislation, (Dodd/Frank) to minimize the risk and today the banks are even bigger. JP Morgan is now worth $2.5 trillion which is twice the size it was before Dodd/Frank. The banks felt, and they were right, that the government would not let them fail and this attitude is called a moral hazard. It means that the banks were willing to take undue risk knowing that if they goofed the government would back them up. Some states like California and Illinois are doing the same thing with their pension plans. They are so far in debt that they think the government will step in an bail them out. Yesterday Senator Warren suggested that the government should excuse student debt and this is what many students were hoping for as they accumulated debt beyond their ability to pay back. There were articles published about students who were taking out loans and investing in stocks thinking they could beat the system.