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Preview — Fault Lines by Raghuram G. Rajan
Fault Lines: How Hidden Fractures Still Threaten the World Economy
Raghuram Rajan was one of the few economists who warned of the global financial crisis before it hit. Now, as the world struggles to recover, it's tempting to blame what happened on just a few greedy bankers who took irrational risks and left the rest of us to foot the bill. In Fault Lines, Rajan argues that serious flaws in the economy are also to blame, and warns that a...more
Some key points I took away:
*Three Major "Fault" lines where tensions create the possibility of future crises:
1) Domestic Political Stresses (need to deal with growing inequality)
2) Trade imbalances (America has been the economic engine by over consuming the rest of the world's output; the developing world needs to consume some of its own output)
3) Different types of financia...more
Here, he uses a wide-angle lens to examine the causes of the 2008 financial crisis, and why we're nowhere near out of danger. A stint as chief economist at the IMF means his perspective is global; understanding growth patterns and rates in de...more
Dismissing the 2008 recession as an inevitable free market setback might seem simple, but economist Raghuram G. Rajan doesn't take the easy path. He makes a compelling case that the weak links in the global economy remain both visible and fixable. In a provocative analysis unhindered by ideological boundaries, Rajan argues against such government interventions as propping up the U.S. housing market. Yet he urges Americans to create a more generous safety net for unem...more
Raghuram Rajan's writing in Fault Lines is most persuasive as he addresses the events that led to Sept. 18, 2008 - specifically the race in the financial sector to attain "systemic risk" status, so as to tout government intervention in tacit sales pitches to investors. His recommendations for regulatory reform are excellent. His recommenda...more
You are the man!
You are the man!
I'm your biggest fan; not since you became Indian Governor but the first time I saw the documentary 'Inside Job'
For the uninitiated, he's the former IMF chief economist who did some kicka** things in his research paper at incentive structure that predicted 2008 US sub prime financial crisis. The author is flamboyant and audacious in pointing at the deficiencies of our current economic system and how its rigged for the benefit of a chosen few. Yet his a...more
You don’t review a much reviewed and acclaimed book if the subject is not your area of expertise. More so when the author who has just taken over as the CHEIF ECONOMIC ADVISOR of your country and could very well be a Governor of Reserve Bank of India one day. And more so you are full 2 year behind others in reading the book- that has been authored by your batch mate. It’s different that you are not in touch and in last 25 years have only met twice.
The global recession that hit in 2008 happened as a result of the "risky" housing loans provided by the US Government to their poor. The house prices rose, the lenders defaulted and the investors around the world who'd bought the Mortgage-backed securities suffered. Some blamed the government, some blamed the financial institutions, and some blamed the poor.
The idea of poor people being able to afford houses was well intentioned. But why did it fail and who was to be blamed?
Relative to this stellar predecessor, Fault Lines was a disappointment. The thesis is that a number of fault lines contributed to the financial crisis and continue to leave us vulnerable. In Rajan's view these include: (i) inequality which led to encouraging over-borrowing as a palliative; (ii) a system without automatic stabili...more
The book's title, "Fault Lines", is appropriate because the level at which Rajan discusses the financial crisis is deep and structural. Instead of glossing over superficial or obvious factors in the crisis like greedy bankers...more
Interesting things I learned: US house prices were more volatile at the low end than the high end (in contrast with other countries that saw a housin...more
"[T]he reason for their rising trade surpluses is not that East Asian households cut back dramatic...more
But let's stick with the book's strength: how regulatory shortfalls, political pressures and highly incentivized financial institutions combined to create the 2008 collapse,...more
The central theme of the book is that big economic shifts such as we saw around 2007 are much bigger than any hedge fund manager banging the close or any disaffected worker exploiting unemployment insurance. The tectonic plates of the global economy shift when the entire system gets too imbalanced - when certain nation...more
This book written in the aftermath of the subprime crisis is a call to understand that until the root of the problems - The Fault Lines that exist are not addressed, any recovery from the economic mess will be short lived. The...more