Moral hazard and mispricing arise from guarantees, says COP
The US government's widespread use of asset guarantees has "rewritten the rules" of the financial system, exposing taxpayers to trillions of dollars in guarantees and creating significant moral hazard, according to a report by the Congressional Oversight Panel (COP).
Taxpayers could have faced "enormous losses" from the guarantees, while moral hazard had distorted market pricing, claimed COP chairwoman Elizabeth Warren. "So long as lenders and borrowers believe a government guarantee is in
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