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Discussion and analysis of the latest economic issues.

By Sean O'Grady, Economics Editor of The Independent.

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Moral hazard on rails

Posted by Sean O'Grady
  • Wednesday, 1 July 2009 at 02:35 pm
What's the difference between a bank and a rail company? Not much, in the sense that the taxpayer will always come along to save the business if it is threatened with failure. The case of the East Coast line and National Express is an obvious example of this "moral hazard" - you might call it "moral hazard on wheels". The company, in reality, takes no real risks because it can always walk away and leave the taxpayer to clear up the mess. A rail line from Edinburgh to London is as almost as indispensable as a functioning financial system. As with the banks we need to find a new way of regulating these companies - and doing away with the moral hazard seemingly built into their contracts.

Comments

herbtibb wrote:
Tuesday, 7 July 2009 at 09:23 am (UTC)
i guess the difference is the banks will bail the people out if they have no savings whereas they let the big companies go which is a bad thing!
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