(Solved):How is the AIG bailout used as an example of a moral hazard if the US government received 80% of its equity? View Answer…

 

Question

How is the AIG bailout used as an example of a moral hazard if the US government received 80% of its equity?

 

EXPERT ANSWER

Moral hazard is not reduced by the changes in ownership, it is a result of asymmetric information. in AIG’s case, the fact that the company is owned mostly by the U.S. government could potentially magnify the problem of moral hazard, because management knows that the government will for

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