Fed Weighs Risky Biz of Rate Cut

Intervention could encourage more risk and trigger bigger crisis
By Peter Fearon,  Newser Staff
Posted Aug 13, 2007 4:03 AM CDT
(AP Photo/Henny Ray Abrams)   (Associated Press)
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(Newser) – The Federal Reserve is facing a dilemma as it decides whether to ride to the rescue of  the market by slashing interest rates—and risk encouraging further recklessness and triggering an even worse crisis, reports the Wall Street Journal. The issue is what economists call moral hazard: protecting someone too well from consequences can encourage even riskier behavior.

"You don't want to see the Fed bail out these guys who have made a lot of money. They have made their bed and you want to see them lie in it," said one analyst. "Then again, you don't want to see the economy go into recession."