Note to readers: these are my notes from the conference, as such, they will be rough.

Keynote: Vernon L. Smith, Professor of Economics, Chapman University, and Nobel Laureate in Economics

Main points: 1) we get bubbles because we misfinance long-term assets, typically housing.? We borrow short to finance a long-term asset.? Examples: Great Depression and now.

Other housing distortions: waiving capital gains taxes, deduction for interest, offering credits to buy mortgages, GSE financing, etc.

Housing is the largest part of the growth in debt.

2) Leverage cuts far deeper on the downside than on the upside.? That’s because it is easier to buy a house than to liquidate an inverted debt.

If incomes do not grow to meet the need to finance incremental debts incurred, you set up a debt financing crisis.

Bernanke cut rates 8/2007-9/2008 in the midst of a solvency problem as opposed to a liquidity problem.? Cutting rates would/did not work.

Financing was short-term for housing in the Great Depression.

If you want to separate underwriting and investing, make incentives to underwriters proportionate to principal repayment.

3) How to fix a debt deflation slump:

WWII did not end the Great Depression — many debts compromised, paid off by 1941.

a) must pay off and compromise bad debts.

b) banks mark assets to market, some fail.? Alternative is Japan, where there is no recovery.

Without significant defaults, there is no way to eliminate a debt deflation.