Economists propose debt ‘haircut’

With many consumers across the country dealing with high levels of consumer debt, some economists are calling for a somewhat radical plan — widespread debt relief.

While levels of consumer debt have fallen slightly since the start of the financial crisis, they remain elevated when compared to historical ratios. That combination of credit card debt, student loans and mortgages is making it difficult for consumers to purchase goods or services, which is holding back the recovery.

Under such a plan, federal officials would make a deal with investors and banks to forgive large amounts of consumer debt, which would force banks to take write-downs on loans.

"If there is something constructive that can be done it should be," Ash Williams, executive director of the Florida State Board of Administration, told the source. "You don't want to reward bad behavior and you don't want to reward people who were irresponsible. But if there is a way to do well by doing good, then let's take a look at it."

It's unknown what kind of impact such a program would have on consumers' three-digit scores or credit reports, or whether it would allow them to repair bad credit quicker than they otherwise would have been capable.