Fault Lines

Fault Lines 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 Potentially Devastating Crisis Awaits Us If They Aren T FixedRajan Shows How The Individual Choices That Collectively Brought About The Economic Meltdown Made By Bankers, Government Officials, And Ordinary Homeowners Were Rational Responses To A Flawed Global Financial Order In Which The Incentives To Take On Risk Are Incredibly Out Of Step With The Dangers Those Risks Pose He Traces The Deepening Fault Lines In A World Overly Dependent On The Indebted American Consumer To Power Global Economic Growth And Stave Off Global Downturns He Exposes A System Where America S Growing Inequality And Thin Social Safety Net Create Tremendous Political Pressure To Encourage Easy Credit And Keep Job Creation Robust, No Matter What The Consequences To The Economy S Long Term Health And Where The US Financial Sector, With Its Skewed Incentives, Is The Critical But Unstable Link Between An Overstimulated America And An Underconsuming WorldIn Fault Lines, Rajan Demonstrates How Unequal Access To Education And Health Care In The United States Puts Us All In Deeper Financial Peril, Even As The Economic Choices Of Countries Like Germany, Japan, And China Place An Undue Burden On America To Get Its Policies Right He Outlines The Hard Choices We Need To Make To Ensure A Stable World Economy And Restore Lasting Prosperity

Raghuram Govind Rajan is a world class Indian economist who has also served 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 former

[Reading] ➸ Fault Lines  Author Raghuram G. Rajan – Online-strattera-atomoxetine.info
  • Hardcover
  • 260 pages
  • Fault Lines
  • Raghuram G. Rajan
  • English
  • 12 March 2019
  • 9780691146836

10 thoughts on “Fault Lines

  1. says:

    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 financial systems arms length vs relationship The role of credit in America1 Starting in 1991, recessions have mostly been jobless , where subsequent increases in output are not accompanied by new jobs Inefficient jobs are shed and replaced by efficient technology.2 Politicians look for quick fixes to unemployment, and instead of focusing on the root cause retooling workers improving grade school education they promote easy credit so that consumption can increase even without an increase in wage Promoting home ownership is a key part of this strategy.3 Low interest rates are an implicit transfer from savers to consumers4 The lack of a strong safety net unemployment insurance and health coverage increase the anxiety of the jobless, and push politicians to extreme and abrupt actions putting out fires instead of carefully addressing the core issues5 There has been a change in mentality no longer possible to become wealthy Land of opportunity now closed The role of Exporting1 Developing countries need both physical capital machines and organizational capital companies to service those machines and their supply chain 2 Institutions develop along with economies, not before them3 Crony managed capitalism is an important step in an economics early stages4 US managed to consume the world s output, financed by their savings The Path of Crises1 excessive investment in a new technology leads to a bubble railroads, tech stocks, real estate, etc 2 One ore companies begin to falter, creating anxiety among investors who promptly flee the market3 Economy crashes and currency devalues Debt burdens increase, and countries are unable to meet their debt obligations Reforms Proposed1 Use contingent regulation need regulation to automatically be tougher when things are going good and lenient when things are going poorly 2 Use lagged public disclosure of risk by regulators to maintain the effectiveness of regulators3 Use bonus escrow accounts, where subsequent losses are clawed back from these pools4 Public disclosure of a living will on how financial companies would unwind under distress to discourage a bailout belief5 Get government out of housing6 Do away with deposit insurance an unfair source of subsidized financing, and unnecessary for investors when there are other equally safe places to invest, such as treasury bills

  2. says:

    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 through the entire cycle once again Having served as Chief Economist of the IMF, his world macroeconomic perspective is broad and very enlightening, as well as impressively non ideological unless you think viewing the crisis through the lens of economics is inherently ideological, in which case good luck with fixing economic policy Rajan s prescriptions are common sense, but overly broad in some ways His discussions of direct monetary, fiscal and trade policies are pretty straightforward, and can be implemented by governments without too much upheaval, but some of the subtler ones are stickier He talks about improving early education in America, for instance, but without a clear roadmap politically or policy wise for doing so That would probably require another book all by itself, but you d like to see him take of a stand on how to get from here to there Perhaps he doesn t like to do that without subjecting his conclusions to the same level of rigor, which is fair, but it leaves those sections feeling a bit hollow All in all, though, it s a pretty short and easy, but comprehensive, analysis of the causes of our current economic woes, and how to avoid subjecting ourselves to further wild, cyclical booms and busts.

  3. says:

    Very well articulated, Prof Rajan had not hesitated from making his opinion on most aspects quite clear Hence the book is not just another case of fiscal and monetary policy levers explained, it takes a stand and from what I see 7 years later in 2017, quite a prophetic stand at that Provides for an insight into the paths countries use to develop, asset pricing and the role Central Bank needs to play in asset price regulation and where the government should draw a line when deciding on economic policy.

  4. says:

    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 developing countries, and financial crises such as the Asian meltdown of 1997, help us understand what s happening in the U.S.He argues that interest rates were kept very low credit very loose in order to help the lower class get a leg up Since their income had stagnated, and since better education to pull them into the middle and upper classes is a very long term solution and thus extremely difficult to achieve politically, policymakers helped low income Americans achieve a higher standard of living by allowing them to buy homes and pull equity out of their homes Needless to say, this went on too long, and the real estate bubble was created Americans overconsumed, took on onerous debt, and thus enabled the countries we were buying from, mainly Germany, Japan, and China, to shortchange their own economies by relying too much on growth from exports.If we had a stronger safety net in the U.S., Rajan argues, we wouldn t need to rely on fiscal and monetary policies to provide stimulus to the poor and or unemployed When the Fed, the Treasury, and politicians use stimulus this way during jobless recoveries, whether by keeping interest rates extremely low or passing legislation to pump billions into the economy, it has unintended and damaging consequences it creates bubbles, it advantages debtors and disadvantages savers, it s a gigantic giveaway to the banks, it artificially props up the housing market and housing prices, and it warps incentives in the financial sector.Rajan urges reforms in two areas the financial sector, and the safety net In the financial sector, incentives are dangerously aligned with taking on risk Wall Street assumes that certain institutions will be bailed out if they fail, and they are correct in this Rajan uses the phrase too systemic to fail rather than too big to fail, because it s not size but interconnectedness that determines when government will step in and rescue Government rescues must stop, because they distort the entire financial sector Financial institutions should know what their risk exposures are, and this information should be made available to the markets on a regular basis during the financial crisis, many companies had no idea how much risk they had taken on If this information is widely known, it can be used to prevent institutions from becoming systemic He proposes that financial institutions have a living will in the event that they are going to fail, such a will would involve regulators in quickly winding down resolving the company without massive, systemic damage In order to properly align individual risk taking with compensation, he proposes holding a significant chunk of a financial company s bonuses in escrow, to be paid out only after it is clear that trading positions have been profitable He also suggests phasing out bank deposit insurance, since a money market fund invested in Treasury bills is just as safe as guaranteed bank deposits.Reforming the safety net needs to be another top priority Recessions have changed, in that the last few recoveries have been jobless, and our current system of unemployment benefits is inadequate in the face of extended periods of joblessness Politicians respond to the needs of the unemployed in ad hoc ways, and as we ve seen recently, they have held benefit extensions hostage to the passage of other, unrelated legislation Rajan suggests that we tie benefits to a formula which would take into account the extent of overall job losses, the proportion of jobs created to jobs lost, and the time elapsed since the recession began He also proposes a system of universal healthcare, given that job loss nearly always comes with a loss of health insurance as well.I enjoyed Fault Lines I found it highly readable There are some areas where, although clearly informed, Rajan seems a little out of his element the discussion of healthcare, perhaps He also is overly wedded to the notion that Fannie and Freddie and the affordable housing mandate are to blame for most of the mortgage crisis It is difficult to reach any other conclusion than that this was a market driven largely by government, or government influenced, money Indubitably Fannie and Freddie have to take some of the blame, but as others have demonstrated, it was Wall Street which created the intense and insatiable demand for subprime mortgages Fannie and Freddie were actually latecomers to the subprime frenzy As Bethany McLean and Joe Nocera showed in All the Devils Are Here The Hidden History of the Financial Crisis, Fannie and Freddie raced to get involved in subprime mortgages because they feared being left behind by their private sector competition.

  5. says:

    Rajan raises some very good points that are sources of concern fault lines as he calls them, namely 1 Income stratification leads to loss of the belief that hard work will payoff2 Education system also see stagnating college graduation rates low income3 Cheap credit quick fix 4 Lack of social safety net unemployment insurance and health coverage I agree with the fundamental message he financial sector was at the center of the last ciris, but it simply responded to implicit and explicit incentives that the system created, therefore we must look for deeper causes in the system.But to the day, Fantacci s work both The End of Finance and his paper From the Great Depression to the current crisis than analogy, genealogy remain the foremost thinking on the topic.

  6. says:

    Great reading which covers events outside the US as well highlights the hidden faultlines in the global economy This could be described as Rajan s pitch for the CEA RBI guv role given the wide ranging problems highlighted and solutions proposed Cash transfers to the poor are proposed and land acquisition issues as an impediment to growth are currently highlighted given this was written 5 6 years ago The aside on India personally was of great interest to me but even the piece on China was quite informative The book is as centrist a solution as can be proposed by an academic and is commendable given it was written when the US had plumbed to the depths of the crisis.

  7. says:

    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 reader, but persist and you will be rewarded with a rich knowledge of the crisis, coming from a man with incredible pedigree

  8. says:

    In the year 2005, the annual Jackson Hole Conference a prestigious event where there is an assorted convergence of highly reputed bankers, economists and financial journalists was supposed to be a swansong bash celebrating the achievements of the Federal Reserve Board Chairman, Alan Greenspan Speaker after speaker showered adulation and sang praises of the man who stymied all efforts to regulate the spawning of esoteric financial instruments and who also ironically coined the now legendary epithet, irrational exuberance However an economist who was also the chief advisor to the International Monetary Fund IMF , proved to be the canary in the coal mine pouring cold water over the warm sentiments of the participants at the conference Raghuram Rajan presented a paper which boldly cautioned the optimists that the global economy was sitting at the cusp of a disastrous recession As expected Rajan was roundly criticized and scorn was heaped over his analysis In 2007, the world plunged into an abyss of economic crisis, the last of which was experienced in the year 1929 The Cassandra from the IMF was proved to be the prophet albeit of doom.In this book, Rajan delves deep into what he terms to be faultlines rupturing the fragile financial and economic fabric of the world Overheated economies banking on producer bias, monetary policies deliberately keeping interest rates at ridiculously low levels with an intent to creating stimulus, predatory lending policies followed by avaricious bankers and mortgage brokers, a revolving door policy which ensures that there is no clear lines between those signing off billion dollar bailouts and recipients of such largesse, are a few telling factors which Rajan identifies as causing a clear and present danger to global economies.Rajan does not merely identify the current and probable ailments After diagosing the disorders with precision, he also goes on to prescribe remedial measures Appropriate levels of financial regulation, recognition to risk managers instead of for traders, diversification of credit and a rational and measured access to credit targeting the low income group borrowers are some of the primary ameliorating mechanisms suggested by Rajan In addition to economic prescriptions, Rajan also holds forth on social aspects such as improving the access to and quality of education, keeping in check poverty and race based discrimination and adult education Following the epilogue is a fascinating chapter on the future prospects of and for India as it marches onward with great determination towards being not only an economic behemoth but also a socioeconomic superpower having an indispensable influence over the global economy and world markets Fault Lines Makes for a tectonic impact

  9. says:

    I m glad to have finished my 31st book for the year 2018 and it turned out to be really insightful one Having seen so many news about how greed of bankers is blamed for crisis vs ineptitude of government regulations, finally someone who provided a view of systematic fault lines that could cause one such crisis if not addressed to early The explanation of fault lines along with economic lessons in each chapter really makes you think if there is a better topic than macro economics and better teach than RR A must read for everyone who is interested in economics general politics awareness.

  10. says:

    Fault Lines provide a flawless albiet a theoretical analysis of Financial Markets, Governments and their interfaces While issues he raised rel vent, solutions are academic in nature which he concedes as a platform for initial discussion than a panacea While some after thoughts of the crises is mired in its myopic observations, others especially views on developing economies and multi national organisations prescient and accurate.Any aspiring Financial or Economic graduate must have this on their must read shelf

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