The leverage cycle

In his lecture below Prof. Geanakoplos talks about why one should consider to regulate the leverage cycle and what impact it has on economic theory.

From my limited point of view we have to adjust economic theory.

In addition an interesting way to regulate leverage could be increase taxes on debt. A higher taxshild on debt would increase indirectly the cost of debt for companies. Further ideas on this can be found in my article on behavioural finance.