that the housing boom and bust of 1997-2007 was due in large part to changes in leverage rather than interest rates. …

changes when the funds are allowed to leverage, i.e., borrow from a bank, which allows them to purchase more assets than their … wealth would otherwise permit. During good times funds that use more leverage have higher profits, increasing their wealth … losses, volatility is high. This leads to power law tails which are both due to the leverage-induced crashes and due to the …

think about default, collateral, and leverage as the central features of the financial/macro economy, despite their complete …

when the funds are allowed to leverage, i.e. borrow from a bank, to purchase more assets than their wealth would otherwise … permit. During good times competition drives investors to funds that use more leverage, because they have higher profits. As … leverage increases price fluctuations become heavy tailed and display clustered volatility, similar to what is observed in real …

The present crisis is the bottom of a recurring problem that I call the leverage cycle, in which leverage gradually … rises too high then suddenly falls much too low. The government must manage the leverage cycle in normal times by monitoring … and regulating leverage to keep it from getting too high. In the crisis stage the government must stem the scary bad news …

Equilibrium determines leverage, not just interest rates. Variations in leverage cause fluctuations in asset prices …. This leverage cycle can be damaging to the economy, and should be regulated. …

Equilibrium determines leverage, not just interest rates. Variations in leverage cause fluctuations in asset prices …. This leverage cycle can be damaging to the economy, and should be regulated. …

change in fundamentals. In C-models, the ability to leverage an asset always generates over-investment compared to Arrow …

even in the absence of any shift in utilities, productivity, or asset payoffs. First we show that the ability to leverage …

We review the theory of leverage developed in collateral equilibrium models with incomplete markets. We explain how … leverage tends to boost asset prices, and create bubbles. We show how leverage can be endogenously determined in equilibrium …, and how it depends on volatility. We describe the dynamic feedback properties of leverage, volatility, and asset prices …