Economists have long argued that, due to moral hazard problems, that bailing out firms such as banks (the S&L crisis, the housing crisis and Covid19), brokerage firms (Bear Stearns, Drexal Burnham) and governments may be bad idea.

a-i. Explain their difficulty with this concept of Bail Out in accordance with moral hazard concerns. What is the moral hazard ? What is one possible remedy for this moral hazard problem (what are the good and bad points of this remedy)?

a-ii. Explain a problem Bail Outs create with adverse selection. What is adverse selection? What is one possible remedy for this adverse selection problem (what are the good and bad points of this remedy)?