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 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 home-owners - 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 under consuming 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.

ISBN	0691152632	Pages	272
ISBN13	9780691152639 (What's this?)	Weight (grammes)	314
Publisher	Princeton University Press	Published in	New Jersey
Imprint	Princeton University Press	Previous ISBN	9780691146836
Format	Paperback	Height (mm)	216
Publication date	08 Aug 2011	Width (mm)	140
DEWEY	330.9051	Spine width (mm)	21
DEWEY edition	DC22	Academic level	General, Tertiary education

Acknowledgments ix Introduction 1 Chapter One: Let Them Eat Credit 21 Chapter Two: Exporting to Grow 46 Chapter Three: Flighty Foreign Financing 68 Chapter Four: A Weak Safety Net 83 Chapter Five: From Bubble to Bubble 101 Chapter Six: When Money Is the Measure of All Worth 120 Chapter Seven: Betting the Bank 134 Chapter Eight: Reforming Finance 154 Chapter Nine: Improving Access to Opportunity in America 183 Chapter Ten: The Fable of the Bees Replayed 202 Epilogue 225 Afterword to the Paperback Edition 231 Notes 241 Index 257

Fault Lines is a must-read. -- Nouriel Roubini Forbes.com [E]xcellent... [Fault Lines] deserve[s] to be widely read in a time when the tendency to blame everything on catch-all terms like 'globalisation' is gaining ground. Economist Like geological fault lines, the fissures in the world economic system are more hidden and widespread than many realize, he says. And they are potentially more destructive than other, more obvious culprits, like greedy bankers, sleepy regulators and irresponsible borrowers. Mr. Rajan ... argues that the actions of these players (and others) unfolded on a larger world stage, that was (and is) subject to the imperatives of political economies... [A] serious and thoughtful book. New York Times A thought-provoking new book... [Rajan's] voice is worth listening to. -- Martin Wolf Financial Times The book, published by Princeton University Press, saw off stiff competition from five others on the shortlist, to be chosen as 'the most compelling and enjoyable' business title of 2010. The final intense debate among the seven judges came down to a choice between Fault Lines and Too Big to Fail, Andrew Ross Sorkin's acclaimed minute-by-minute analysis of the collapse of Lehman Brothers. The book identifies the flaws that helped cripple the world financial system, prescribes potential remedies, but also warns that unless policymakers push through painful reforms, the world could be plunged into renewed turmoil. Financial Times Rajan is worth reading not just because he was correct when few were but also because his writing is clear as a bell, even to nonspecialists. -- Christopher Caldwell Weekly Standard The left has figured out who to blame for the financial crisis: Greedy Wall Street bankers, especially at Goldman Sachs. The right has figured it out, too: It was government's fault, especially Fannie Mae and Freddie Mac. Raghuram Rajan of the University of Chicago's Booth School of Business says it's more complicated: Fault lines along the tectonic plates of the global economy pushed big government and big finance to a financial earthquake. To him, this was a Greek tragedy in which traders and bankers, congressmen and subprime borrowers all played their parts until the drama reached the inevitably painful end. (Mr. Rajan plays Cassandra, of course.) But just when you're about to cast him as a University of Chicago free-market stereotype, he surprises by identifying the widening gap between rich and poor as a big cause of the calamity. -- David Wessel Wall Street Journal In a new book ... entitled Fault Lines, Rajan argues that the initial causes of the breakdown were stagnant wages and rising inequality. With the purchasing power of many middle-class households lagging behind the cost of living, there was an urgent demand for credit. The financial industry, with encouragement from the government, responded by supplying home-equity loans, subprime mortgages, and auto loans... The side effects of unrestrained credit growth turned out to be devastating--a possibility most economists had failed to consider. -- John Cassidy New Yorker [C]onvincing. -- Christopher Caldwell New York Times Magazine What if the financial crash of 2008 was really caused by income inequality? Not greedy bankers, not reckless homeowners, but the ever widening-gulf between the rich and the poor? And what if the lack of social services--like health care--made things much, much worse? This is the startling new theory from Raghuram Rajan... [Fault Lines is] especially fascinating because it mixes free-market Chicago School economics with good-government ideas straight out of Obamaland. -- John Richardson Esquire.com A high-powered yet accessible analysis of the financial crisis and its aftermath, Fault Lines was awarded the FT/Goldman Sachs Business Book of the Year. Rajan ... was one of the few who warned that the crisis was coming and his book fizzes with striking and thought-provoking ideas. Financial Times What caused the crisis? ... The

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