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ABC Addresses 'Moral Hazard' of Government Bailouts

ABC reporter Dan Harris introduced the helpful term “moral hazard” into the lexicon of reporting on the brewing bailout controversy, whether the government should help people defaulting on their mortgages.


According to Harris, economists “use a term called 'moral hazard,' which you will probably be hearing a lot. It means that if the government rescues people when they make risky investments, that creates the incentive to take even more risks.”  


On the February 28 World News with Charles Gibson, Harris set up the use of the term by showcasing a talk radio host in Boston taking a call from a listener who thinks bailouts are bad and then cutting to two sound bites from homeowners struggling to keep their houses.


HARRIS: Sympathetic stories, yes. But on our Web site, we heard from people who said no bailout, no way. People like Michael, who writes, "I have no sympathy for people who knew they were getting in over their heads and now expect to be bailed out." Professional economists have a similar concern. They use a term called moral hazard, which you will probably be hearing a lot. It means that if the government rescues people when they make risky investments, that creates the incentive to take even more risks.


PROF. CHRIS MAYER, Real Estate, Columbia University: I'm worried about encouraging people to do things they don't understand, with the view the government's always going to step in and fix anything that doesn't work.


Following Mayer's quote Harris cut to another struggling homeowner who maintained she wasn't irresponsible but was misled by her lender.  Harris then used an unidentified “expert” who said government bailouts were necessary to prevent broader economic impact and crisis, otherwise “we're going down the tubes together.”


Harris could have ended the story there and in so doing would have followed the pattern the media have used in reporting on issues of debt for more than a year, as documented in a recent study, Debt: Who$ to Blame, published last fall by CMI and sister organization the Business and Media Institute.


However, Harris chose to come back to the moral hazard issue, concluding his report with, “But tonight, there are loud voices arguing that the government will just prolong the pain by rescuing homeowners. Creating a moral hazard that will become a serious, long-term, economic hazard.”


It's too early to tell if this moral hazard/personal responsibility theme will become a major talking point for journalists covering future mortgage crisis storylines, but kudos to Harris for addressing it – strongly – on World News.     


Kristen Fyfe is senior writer at the Culture and Media Institute, a division of the Media Research Center.