Bailout Barometer

"Moral hazard means once someone bails you out, what's stopping you from taking another shot?"
--Jacob Moore (Wall Street: Money Never Sleeps)

Strangely enough, the Richmond Fed has developed what itself calls the Bailout Barometer to indicate the fraction of financial sector liabilities that are protected from losses. At the end of 2013 the Bailout Barometer estimated that about 60% of all liabilities were protected. The bailout fraction has been increasing with time.

As astonishing as that number is, it is likely underestimated. Few securities are now traded under the assumption that the Fed or some government entity has their back in case things don't work out.

This is, of course, is moral hazard WRIT LARGE.

And most ironically, the Bailout Barometer comes courtesy of the largest facilitator of moral hazard on the planet: the Federal Reserve.