Thomas Cook’s downfall is a story of two moral hazards. The first sees the government’s refusal to bail out the company, fearing the creation of a ‘moral hazard’ that would encourage reckless financial behaviour. The second is the moral hazard of the company’s executives, who, despite the company’s struggles, continued to reward themselves lavishly.
The government’s refusal to intervene has been criticised, with many suggesting that a temporary bailout could have protected jobs and prevented the chaos caused by the collapse. Critics argue that this approach is inconsistent, citing the 2008 financial crisis when banks were bailed out to avoid a larger economic catastrophe.
On the other hand, Thomas Cook’s executives have been accused of prioritising their own financial gain over the company’s long-term stability. This is seen as a reflection of a wider problem within the corporate world, where short-term profits are often prioritised over long-term sustainability.
The collapse of Thomas Cook serves as a stark reminder of the dangers of both types of moral hazards, and the need for stronger regulation to prevent such crises in the future. It also highlights the need for a more nuanced understanding of the role of government intervention in business, and the potential consequences of its absence.
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