Fault Lines: How Hidden Fractures Still Threaten the World Economy

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Princeton University Press, Aug 28, 2011 - Political Science - 280 pages

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 more devastating crisis awaits us if they aren't fixed.

Rajan 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 U.S. financial sector, with its skewed incentives, is the critical but unstable link between an overstimulated America and an underconsuming world.

In 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 more stable world economy and restore lasting prosperity.

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User Review  - JohnPhelan - LibraryThing

An interesting and well ordered look at the causes and consequences of the financial crisis from a mainstream but non New Keynesian approach. Its focus on the role of government agencies in the fostering of the housing boom alone makes it worthwhile. Read full review

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User Review  - nosajeel - LibraryThing

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 ... Read full review

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About the author (2011)

Raghuram Rajan is an electrical engineering graduate from the Indian Institute of Technology in Delhi. He earned his M.B.A. from the Indian Institute of Management, Ahmedabad, and his Ph.D. from MIT. He was the Economic Counselor and Director of Research at the International Monetary Fund from October 2003 until December 2006. Before this, Rajan taught at the Graduate School of Business at the University of Chicago. In 2003, Rajan was awarded the inaugural Fischer Black Prize by the American Finance Association for contributions to finance by an economist under 40. Rajan's research is in banking, corporate finance, and economic development, and the role finance plays in it. His papers have been published in all the top economics and finance journals, and he has served on the editorial board of the American Economic Review and the Journal of Finance. He written works include Fault Lines: How Hidden Cracks Still Threaten the World Economy. He also has an earlier book co-authored with Luigi Zingales entitled Saving Capitalism from the Capitalists.

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