The economic reasoning behind bailout or no bailout.

The word moral, on the other hand, didn't have the ethical connotation it carries today—it just meant the situational rather than the tangible. Moral hazard was an assessment of risk based on the situation. For instance, a log cabin was more susceptible to fire damage than a stone cottage. Over the years, though, “moral hazard” also came to mean a situation in which the insured became cavalier about due diligence on their end—leaving a cooking fire unattended in that log cabin, for instance—banking on restitution in the event of a disaster.

The concept of moral hazard in finance was described, although not named, by British economist Henry Thornton in 1802. The phrase was first used in a modern context in 1963 by economist Ken Arrow and has been since employed to describe the dilemma that arises when a government helps a financial institution regain its footing after a self-inflicted stumble. The danger is that rather than being viewed as a one-time rescue, the government’s assistance will be interpreted as a precedent for the future.

Critics of the rescues of Bear, AIG, Fannie, and Freddie paint the Fed as the enabling parent bailing its drug-addicted kid out of jail yet again; others argue that the government encourages moral hazard anyway by guaranteeing investments through agencies like the FDIC. There’s a grain of truth to each, although the second argument is really a moot point: No one expects the average checking-account holder to undertake an MBA’s worth of research on the state of his or her bank’s fiscal health.