Should courts write-off large debts?

The Times reports: [US] Judge wipes out $500,000 debt to punish 'repulsive' bank!

Before cheering this apparently heart-warming story - think through the consequences if this ruling was applied to large swaithes of sub-prime mortgages.

Lots of people who borrowed more than they could ever hope of repaying would have their debts annulled.

The banks would have to write-off those debts so further impairing their balance sheets. Governments would have to step in with more bailouts (unless you want the banking system to collapse and to lose any money you have on deposit).

To fund the bailouts the governments will have to borrow and tax more - so raising the cost of borrowing for even more people (so making many more unable to pay their debts) - so further impoverishing those prudent enough to save and not to overspend.

Now let me see - how many hurrahs was that?