Debt, default, and forgiveness have been at the heart of almost every major financial boom, bust, and recovery. Without debt, growth is nearly impossible. Yet too much debt is catastrophic. Why is it that out of all economic variables, debt causes the most trouble? In these lectures John Geanakoplos describes debt in history, in literature, and in economic theory, including his own theory of the leverage cycle, culminating in an explanation of the American mortgage crisis of 2007-2010 and the European sovereign debt crisis of 2010-2016.
Lecture 1: Trust and Panic - Monday, September 25, 2017.
Philosophers like Plato and Nietzsche, and writers like Dickens and Shakespeare, have given a central role to debt in shaping our understanding of morality and justice. Debtors prison, bankruptcy law, and central banks are all government creations to manage credit. In this lecture Geanakoplos presents a history of debt and default, punishment and collateral, money and bonds, central banks and bank runs, and of economic booms and busts, to illustrate a pattern he calls the Leverage Cycle.
Lecture 2: The Leverage Cycle and Forgiveness. - Tuesday, September 26, 2017.
What happened in 2007-2016? Are debt crises the result of panic, or systemic failure that can be controlled by regulation? Is there a mathematics of debt crises? Why is forgiving debt so hard? Why is it so important? When is it appropriate? Geanakoplos describes the leverage cycle, and uses it to explain the mortgage debt crisis of 2007-2008, the Greek and European debt problem today, and student debt tomorrow.
John Geanakoplos is the James Tobin Professor of Economics at Yale University, an inaugural Yale Faculty Senator, a Fellow of the American Academy of Arts and Sciences, and a recipient of the Samuelson Prize. From 1990-1994 he was Director of Fixed Income Research at the investment bank Kidder Peabody, and in 1995 he was one of the founders of the hedge fund Ellington Capital Management, where he remains a partner. He was Director of the Cowles Foundation for Research in Economics for 9 years, and director of the Steering Committee for the Santa Fe Institute for 6 years. He is the creator of a theory of collateral equilibrium and the leverage cycle. He has testified several times before Congress about debt forgiveness and he advised the Greek government about Greek debt relief.
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SFI's Stanislaw Ulam Memorial Lecture Series honors the memory of the late theoretical mathematician Stanislaw Ulam.