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Fault Lines: How Hidden Fractures Still Threaten the World Economy
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Fault Lines: How Hidden Fractures Still Threaten the World Economy

4.0 of 5 stars 4.00  ·  rating details  ·  1,747 ratings  ·  111 reviews
Winner of 2010 FT Goldman Sachs Business Book of the Year Award

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 se

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Published May 24th 2010 by Princeton University Press (first published May 4th 2010)
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Rajan does an exceptional job of distilling the factors leading to the 2008 financial sector meltdown, linking the actions of government (both US and world governments) and the private sector, and dispassionately describing the various ways they contributed to the creation and bursting of the bubble. He also makes some very cogent and disturbing points about the lack of correction (and in some cases, exacerbation) of the "fault lines' he identifies in the world economy, which threaten to push us ...more
A very nice synopsis of the world economy following the latest financial crisis and directions on where we may be headed.
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
Sep 19, 2011 Lobstergirl rated it 4 of 5 stars  ·  review of another edition
Recommends it for: Esther Fenchel
Economist Raghuram Rajan was one of the prescient ones: at a central bankers' conference (honoring Alan Greenspan no less) in 2005, he delivered a paper asking "Has Financial Development Made the World Riskier?" His answer was yes. Events proved him correct.

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
Fateh Mann
India's new RBI chief has a lot of expectations on his shoulders, and this book shows why. His analysis is holistic, comprehensive, convincing and rational. He traces the roots of the crisis to at least 40 to 50 years before, and takes it from there on. For a person who hasn't actually studied economics, it will prove to be a terribly difficult read because 1) in terms of writing style, he's not exactly a Rushdie and 2) For the prevalence of many complex terms. This book isn't for the casual rea ...more
Anil Swarup
Rajan provides a flawless diagnosis of the financial crisis that shook the American economy and the contagion that rocked the world. Unlike many analysts who indulge only in a theoretical analyses, he suggests a strategy to prevent such a crisis in the future. His prescription appears plausible, "doable". Most of the book relates to the USA. However, there seem to be very little of his prescription happening on the ground. Even the universal health insurance seems to be foundering.
The analyses
Provocative economic analysis

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
Adrian Lee
This book tries to examine the underlying tensions, trade-offs, and interdependencies that have characterised the recent financial crisis in a holistic manner, and by and large the author has succeeded. Its strength lies in its astute awareness of how the crisis was writ large by US social inequality and the lack of a safety net following the dot-com bust and its associated jobless recovery, which prompted the government to intervene by increasing access to credit as a panacea to inflate asset p ...more
This is a gently persuasive book by a reasonable and well-informed intellectual. It is a commentary on the times that such a thing as this would be remarkable.

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
Rajan gives an adequate explanation of inequality, excessive risk, and the financial debacle. But a portion of his central argument is that the financial collapse was attributed, in part, to the mandated lending by the Community Reinvestment Act (CRA) and the subsequent actions of Fannie Mae and Freddie Mac. The numbers simply do not add up: the government-sponsored-enterprises and their affordable housing subsidies out performed any other sector in the residential mortgages. By a large margin. ...more
Abhishek Singh
Rajan, dude!
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
Sanjeev Kotnala
FAULT LINES by Raghuram G Rajan
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.

more http://rivr.
Aditya Prasad
Being an amateur reader in financial economics, I read a couple of books on investment strategies, how to put the world economy back on the bull, affects of capitalism-good/bad etc. But I must say, this is one of it's kind. The author, the youngest one to become a chief economist at IMF and many other credentials to his CV, had put his experience at the IMF, American Financial Sector and teaching experience at Booth School into this book. He underlines some dangerous contemporary trade/financial ...more
Avinash .
“The U.S. financial sector thus bridged the gap between an overconsuming and overstimulated United States and an underconsuming, understimulated rest of the world. But this entire edifice rested on the housing market. New housing construction and existing housing sales provided jobs in construction, real estate brokerage, and finance, while rising house prices provided the home equity to refinance old loans and finance new consumption. Foreign countries could emerge from their slump by exporting ...more
Only one word for it- fantastic! If you have the time to read only one book on the financial crisis of 2008, then there cannot be a stronger candidate. Dr. Rajan's systematic dissection of the roles each of the stakeholders involved (mortgage agents, banks, the Fed,the US government) played throws stark light not only on the inadequacies of the then extant conditions in the financial markets but also on their genesis and gestation.The point that the crisis did not unfold overnight but had its or ...more
Prashanthini Mande
The crisis

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?

Fault line
Rajan goes to great lengths to maintain a non-partisan tone while describing what he calls "fault lines." These fault lines are problems inherent in economic systems, both global and national (with emphasis on the United States), that contribute to the magnitude and frequency of economic catastrophes like the credit crisis of 2008. This is an easy read for an armchair economist (someone like myself, who has had no Economics classes and doesn't know any of the jargon) despite being a scholarly wo ...more
Raghuram Rajan was formerly chief economist at the IMF, and that probably explains his global grasp of our current economic problems. He identifies multiple fractures in the world economy and convincingly explains how and why the fractures intersect. Since the early 90s, for example, America's recoveries from recessions have been increasingly jobless. That's because technological advances have decreased employment opportunities for workers without a college degree. Our politicians chose to handl ...more
Raghuram Rajan is the hands down co-winner of the best title for any economics book in recent years: Saving Capitalism from the Capitalists. It was also a very good book.

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
Former Chief Economist of the IMF and Professor at the University of Chicago Booth School of Business, Raghuram Rajan qualifies as a heavy-weight in his field. This is the first book I've read about the Financial Crisis of 2007, so I can't compare it to others of its kind.

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
Nikhil Kumar
Rajan presents an analysis sufficiently detailed for a student of economics, yet accessible enough for a well-informed layman in a very thoughtful, balanced way. Although a noted proponent of the free markets, he doesn't subscribe to the political hackery of today's "pundits" and "experts". Rather, he describes realistic faults with the status-quo from an academic's vantage point-- the American conception of the safety net increases uncertainty in times of unemployment, which may not be suited f ...more
This is a wonderful book about the causes of the 2007 financial crisis and Great Recession, and the extent to which they could resurface in the future. The author writes very clearly, and while the topic is a little dry, almost every page features interesting insights. (I learned relatively quickly that reading this book required my full attention.)

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
"Politicians are coming to terms with something Aristotle pointed out: that although quarrels are more likely in an unequal society, striving to rectify the inequality may precipitate the very conflict that the citizenry wants to avoid. Politicians have therefore looked for other ways to improve the lives of their voters. Since the early 1980s, the most seductive answer has been easier credit." (31)

"[T]he reason for their rising trade surpluses is not that East Asian households cut back dramatic
This was a disappointing book overall. On the areas that Rajan knows well, international economics, the book is pretty interesting. When he tries to move into other areas, however, his analysis and conclusions are very weak. For example, Chapter 1 discusses government efforts to promote homeownership among low-income individuals, as reflected in the Community Reinvestment Act and the Affordable Housing Goals of the Government Sponsored Entities (Fannie Mae and Freddie Mac). The analysis largely ...more
John Griffin
Great analysis of how domestic political pressures lead to macro-economic instabilities in the United States and abroad. Less insightful into why income disparities are a root cause, and even less convincing are Rajan's recommendations that academics might harness multilateral institutions to solve the problems he identifies.

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,
Seth Oldmixon
Raghuram Rajan provides a grown up and serious perspective on the causes of and solutions to the economic crisis that plagued the beginning of the century in his book, Fault Lines.

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
Nick Urciuoli
Fault Lines plumbs much deeper into the causes of the financial crisis than most accounts. Rajan explains how export-heavy growth strategies in emerging economies and easy US monetary policy contributed to a glut in credit that rendered American asset markets like housing very frothy. He couples this point with a recognition that this credit abundance spread into the subprime lending sector in large part because of government intervention in the housing market. The US' private financial sector t ...more
Dr.Rajan's book is an important contribution to the understanding of the 2008 global financial crisis, its origins, its causes and the ways to reduce the chances of such nasty 'surprises' in future. Rajan does not blame the bankers and hedge fund managers for their greed and high-risk investment behavior as the root cause of this crisis. He talks about serious imbalances in the global economy, political pressure to make easy credit available in the US and also the weak social security safety net ...more
An interesting set of essays on the fundamental conflicts and tensions in international economics and finance that led to the recent financial meltdown and how many of those fundamental tensions - or fault lines - are still present and remain unresolved. For example the tension between the use of consumer debt as a policy response to increasing income inequality and the potential for a meltdown that comes when debt bubbles are allowed to grow unchecked. Other issues covered include the formal ve ...more
Praveen N. Jayasuriya
The book is ten chapters long and also includes a rather lengthy introduction by the author which serves as an abstract of sorts to the main prose. However I found myself speeding through the chapters thanks in part to the thoroughly engrossing narrative - Rajan takes you through a chronological as well as a thematic survey of the events leading up to the recent financial crisis - and in part to the highly engaging academic discussion which focuses on the forces that shaped the crisis and how to ...more
In 2005, the author, at an elite economists gathering honoring the then Fed Reserve governor, Alan Greenspan, made the point that financial development had made the world riskier. He met with scorn and as the documentary 'Inside Job' showed, accusations of being a luddite!

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
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Raghuram Govind Rajan is a world-class Indian economist who has been appointed as the twenty-third Governor of the Reserve Bank of India. He also serves as Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. Rajan is also a visiting professor for the World Bank, Federal Reserve Board, and Swedish Parliamentary Commission. He for ...more
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“And more than the quality of its institutions, what distinguishes a developed country from a developing one is the degree of consensus in its politics, and thus its ability to take actions to secure a better future despite short-term pain.” 2 likes
“The picture of bankers slavering after bonuses soon after they had been rescued by government bailouts was not only outrageous but also pitiable - pitiable because they were clamoring for their primary measure of self-worth and status to be restored” 1 likes
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