State True or False and justify your answer:

Moral hazard was a primary cause of the S&L crisis of the 1980s.

True.

In the 1980s when legislation and financial innovation made it simpler for S&Ls to take in more level of risk, it greatly increased the adverse selection and moral hazard problems.

The one-two punch to the real estate and finance industries was part of the 1990-1991 recession because new homes fell to a low that had not been seen since the Second World War. Economists speculate that financial and regulatory incentives that created a moral hazard in the mortgage market are very similar to the conditions leading to the Savings and Loans crisis. Low moral hazard includes a decline in interest rates, transparent capital flow, and property inventory processing of information. The S& L crisis included a lack of funds in the market and a hike in the interest rates.