Why Do Some Observers Think That the Problem of Moral

question 51

Essay

Why do some observers think that the problem of moral hazard led to one of the most spectacular banking collapses in recent times, the collapse of the US investment bank?

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Definitions:

Dividends

Payments made by a corporation to its shareholder members, often derived from the company's profits.

Preferred Shares

A class of ownership in a corporation that has a higher claim on its assets and earnings than common shares, often receiving dividends before common shareholders.

Common Shares

Equity securities that represent ownership in a corporation, providing voting rights and a share in the company's profits via dividends.

Common Shareholders' Equity

The amount of money that would be returned to common shareholders if all of the assets were liquidated and all of the company's debts were paid off.