NEW YORK (Reuters) – More than three years after the financial crisis struck, the economy remains stuck in a consumer debt trap. It’s a situation that could take years to correct itself. That’s why some economists are calling for a radical step: massive debt relief.
Federal policy makers, they suggest, should broker what amounts to an out-of-court settlement between institutional bond investors, banks and consumer advocates – essentially, a “great haircut” to jumpstart the economy.
What some are envisioning is a negotiated process in which cash-strapped homeowners get real mortgage relief, even if it means forcing banks to incur severe write-downs and bond investors to absorb haircuts, or losses, in some of the securities sold by those institutions.
“We’ve put this off for too long,” said L. Randall Wray, a professor of economics at the University of Missouri-Kansas City. “We need debt relief and jobs and until we get these two things, I think recovery is impossible.”
Read the rest at Raw Story, Radical proposal: Massive debt relief to kick-start economy