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Many economists argue that a rescue of a financial institution should protect the institution's creditors from losses but NOT protect its owners: They should lose their equity. Supporters of this idea say that it reduces the moral hazard created by rescuers. (i) Explain how this approach reduces moral hazard compared to a rescue that protects BOTH creditors and equity holders. (ii) Does this approach eliminate the moral hazard problem completely? Please, explain.

Reference no: EM132953291

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