We have what social scientists call a terrific moral hazard problem in Iraq today.

NPR: Exiting Iraq: Larry Diamond's View

Another thing worrying Congress is that bailing out banks that have made bad decisions will encourage them to take even greater risks in the future - the so-called moral hazard problem.

BBC: Would a $700bn bail-out end the crisis?

In other words the moral-hazard problem will be even greater.

ECONOMIST: A new economic era is dawning

Importantly, as my FOMC colleague Gary Stern has pointed out, it would also mitigate moral hazard and the problem of "too big to fail" by reducing the range of circumstances in which systemic stability concerns might be expected by markets to prompt government intervention.

FORBES: Reducing Systemic Risk

The solution to this is deposit insurance but that solution comes with its own problem, moral hazard.

FORBES: Links 25 March: Sense In Cyprus, How To Deal With Both Deposit Insurance And Moral Hazard

In any case, the problem of moral hazard can never be eliminated, only suppressed (at a cost).

ECONOMIST: Could banks police each other?

The crux of the problem is familiar: moral hazard.

ECONOMIST: Diminishing returns | The

Some of the new financial instruments also confront investors with a problem largely absent from traditional asset-backed securities: moral hazard.

ECONOMIST: Bonds that rock and roll