Fault Lines: How Hidden Fractures Still Threaten the World Economy
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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I really liked this book.
It was mostly analysis, not lots of facts. Some of his conclusions I thought were lacking in evidence.
It explained a lot of things to me, though, that I never knew. It explains how, exactly, the Chinese government keeps its currency's exchange rate fixed. It explains why it was somewhat plausible for a security made up only of subprime mortgages to be rated AAA. But mostly it explains why the world economy is so unstable, and makes serious suggestions for improvement.
Definitely worth a read for anyone with an interest in or patience for macro economics.
I had been wanting to read this book for many months since it had been billed as the Goldman Sachs/Financial Times 2010 business book of the year.
Unfortunately, this book was hard to read, stylistically simple and lacked any truly captivating narrative. It was like reading a power point presentation. Although the ideas put forth were sometimes interesting I found the prose to be uninspiring.
Also, it seemed that the author was biting off more than he could chew. Each chapter covered a rather large issue over the course of about 20 pages, not nearly enough to craft a thorough argument.
There was one very interesting section called The Cost of Undervaluation, very near the end of the book, about the relationship of the renminbi to the dollar and the various repercussions of that policy. The section gave me new insight into this topic. Yet, again, it could have just as easily been put in bullet point format and been as interesting.