How does moral hazard problem associated

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Financial crises often go through three phases: Phase 1 - "New Era" psychology breeds asset value bubble; Phase 2 - Asset value bubble busts and future uncertainty increases; Phase 3 - Money hoarding increases and economy slows down.

(a) How does moral hazard problem associated with mortgage broker aggravate the reckless promotion and fraud in housing bubble in Phase 1 of 2007-2008 global financial crisis?

(b) In Phases 3, credit crunch takes place. What is the credit crunch? Is the credit crunch a problem of adverse selection or moral hazard, and why?

Reference no: EM133059746

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