Paying people sensibly instead of cynically cutting their income and forcing them into debt works better than either option.

That is a point Keen's debt jubilee avoids since if you were prudent you get cash to spend as you like, but if you have loans you get cash that must go to pay back loans. So same sum, but more freedom for the prudent.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

Yeah, because governments and central banks haven't been engaging in massive moral hazard to the benefit of the TBTFs over the past 5 years.

Moral hazard is the last refuge of the scoundrel.

Between moral hazard and mass unemployment, I choose moral hazard every time.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

Debt writedown is what you do when your predecessors have neglected to do the responsible thing. Which is to maintain a bank of shovel-ready public works which can be begun immediately, and which would pay the debtors money to pay down their debts in exchange for goods and services of durable value.

However, such projects cannot be conjured forth on demand, they must be prepared ahead of time. And in the absence of such preparation, the alternative to debt writedown is make-work. Which is not without problems of its own.

In a properly regulated financial system, such moral hazard creating events would be rare, because in a properly regulated financial system lenders are prevented from lending to overextended borrowers, speculators and Ponzi merchants.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

After price crash in housing market it's also a moral hazard to leave only the debtor to foot the bill.