The moral hazard of a bank bailout, protecting people against being shot in the street for losing all of someone savings, the lying on loan applications encouraged by bank officers, the promises of low fixed rate permanent loans/re-fi that never materialized, the shoddily done foreclosure apps, the false bundling of securities?

Sounds like "letting judges adjust the principle on mortgages" is step one to avoiding that moral hazard. Hopefully we don't have people feeling strongly enough about moral hazard that they shoot the guys who sold the "safe" investments in Mortgage backed securities.