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, more 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!