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Fault Lines: How Hidden Fractures Still Threaten the World Economy [Kindle Edition]

Raghuram G. Rajan
4.3 out of 5 stars  See all reviews (88 customer reviews)

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Book Description

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.



Editorial Reviews

Review

  • Raghuram G. Rajan, Winner of the 2013 Deutsche Bank Prize in Financial Economics, The Center for Financial Studies


  • Winner of the 2010 Business Book of the Year Award, Financial Times and Goldman Sachs


  • Winner of the 2011 Gold Medal in Finance/Investment/Economics, Independent Publisher Book Awards


  • Winner of the 2010 PROSE Award in Economics, American Publishers Awards


  • Winner of the 2010 Gold Medal Book of the Year Award in Business & Economics, ForeWord Reviews


  • Finalist for the 2010 Paul A. Samuelson Award, TIAA-CREF


  • One of strategy+business magazine's Best Business Books of the Year for 2010


  • Best Crisis Book by an Economist and Named one of Bloomberg News's Thirty Business Books of the Year for 2010


  • One of Financial Times's Books of the Year in Business & Economics, Nonfiction Round-Up for 2010


  • Finalist for the 2010 Book of the Year Awards in Business and Economics, ForeWord Reviews


  • Finalist for the 2011 Estoril Global Issues Distinguished Book Prize


"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

"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

"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

"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

"[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

"[C]onvincing."--Christopher Caldwell, New York Times Magazine

"Fault Lines is a must-read."--Nouriel Roubini, Forbes.com

"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 (FT Critics Pick 2010)

"What caused the crisis? . . . There is an embarrassment of causes--especially embarrassing when you recall how few people saw where they might lead. Raghuram Rajan . . . was one of the few to sound an alarm before 2007. That gives his novel and sometimes surprising thesis added authority. He argues in his excellent new book that the roots of the calamity go wider and deeper still."--Clive Crook, Financial Times

"A thought-provoking new book. . . . [Rajan's] voice is worth listening to."--Martin Wolf, Financial Times

"Few people were able to foresee the recent economic downturn. Raghuram Rajan . . . was one of them. This makes his new book, Fault Lines, worthy of consideration amidst the rampant speculation about the causes of the financial crisis. . . . Fault Lines is valuable primarily for its clear explanation of unintended economic consequences from well-meaning government intervention."--Washington Times

"Rajan's writing is clear and direct."--James Pressley, Bloomberg News

"Former IMF chief economist Raghuram G. Rajan . . . in his new book, Fault Lines, brings together and explains the diverse failings that contributed to the crisis--the fault lines, as he puts it, that were exposed by the events of the past several years. Rajan then puts forward broad policy recommendations to ward off a future problem. . . . Rajan's book takes a comprehensive look at what got us into the crisis and offers an intriguing approach to avoiding another one."--Phillip Swagel, Finance & Development

"I devoured Raghuram Rajan's Fault Lines: How Hidden Fractures Still Threaten the World Economy in a very short span of time last night. It's brief, well-written, and extremely interesting. I would definitely recommend adding it to your financial crisis reading list."--Matthew Yglesias, Yglesias blog

"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 proposed global reforms that [Rajan] lists in Fault Lines run the gamut from the prosaic to grandiose. Along with revamping Wall Street's pay system, he offers innovative ideas on building capital buffers into the global credit system, obviating much of the need for bailouts of companies deemed too big or too enmeshed in the financial system to fail."--Barron's

"Economists who can challenge their peers while remaining accessible to the general reader are rare, but Rajan belongs to this elite group. No short summary can do justice to this well-written, insightful, and nuanced study."--Choice

"In 2007, then-chief IMF economist Raghuram G. Rajan delivered a stark warning to the world's top bankers: financial markets were headed for doom. They laughed it off. In the wake of the collapse that followed, Rajan has written a new book, Fault Lines: How Hidden Fractures Still Threaten the World Economy, that warns the system is doomed to repeat its mistakes. Like many defenders of the market, Rajan urges us not to demonize the bankers. But it's this fiscal conservative's focus on inequality that makes him stand out from the pack. The growing wage gap, he argues, is a hidden driver of financial instability, putting constant pressure on politicians to enact short-term fixes."--Toronto Star

"The critics are wrong: Raghuram Rajan's analysis of the global financial crisis remains highly relevant and deserves to be widely read. . . . The breadth of Rajan's explanatory framework--which is presented cogently and concisely within 230 pages of text--marks this book apart from many others that tackle the same themes."--Mark Hannam, Prospect

"Dozens of experts have explored the reasons behind the ongoing global economic turmoil, and Raghuram Rajan provides his own elegant and thoughtful analysis in Fault Lines."--BizEd

"With Fault Lines, Rajan has made an original diagnosis of the credit crisis, one that goes much further than those of greedy bankers or wasteful mortgage giants such as Fannie Mae and Freddie Mac."--Christophe De Rijcke, De Tijd (translated from the Dutch by K.C.L.)

"A book that should be the default choice of discerning finance professionals when they enter the store the next time."--D. Murali, Business Line

"Rajan's Fault Lines is . . . expansive and policy-focused and clearly destined to become a must-read on any list of books on the recent global crisis."--Jahangir Aziz, Business Standard

"Insightful, educative and incredibly gripping, if you want just one book to understand the ongoing global financial crisis and the way forward, Fault Lines it is."--Gautam Chikermane, Hindustan Times

"Best Crisis Book by an Economist (2010)."--James Pressley, Bloomberg News

"Fault Lines has a strong claim to be the economics book that best caught the spirit of 2010. Raghuram Rajan's receipt of the Financial Times and Goldman Sachs annual business book award only confirmed his book's widespread popularity. It is not hard to see why so many people liked it. Fault Lines eschews hyperbole for a lucid and balanced account of the crisis."--Fund Strategy

"Rajan . . . comes up with original and important long-term remedies. . . . Rajan's book is a bold enterprise in three ways: firstly it aims to explain the US financial crisis by looking at deep, decade-long fractures in economies and societies; secondly it suggests well-known but radical solutions that few dare put forward; and finally it supplies innovative answers to practical questions. . . . [T]he book will please any reader looking for an inquiry into the deepest causes of the recession and a consistent account of government's errors of omission and commission."--Natacha Postel-Vinay, British Politics and Policy

"[Fault Lines]'s great strength is that it is a clearly written work of political economy, accessible to readers who do not have a PhD in economics or finance. Its objective is not to point fingers at the guilty, and it comes to some surprising conclusions."--Stewart Fleming, European Voice

"Fault Lines is a very well written and cogent book that provides a global perspective on the causes of the crisis, the dangers if the root causes of it are not addressed, possible solutions, and ideas for implementing them. . . . In sum, this book is a must read for analysts, academics, politicians, economists, and the like."--Emilia Garcia-Appendini, Financial Markets and Portfolio Management

From the Inside Flap

"Fault Lines provides an excellent analysis of the lessons to be learned from the financial crisis, and the difficult choices that lie ahead. Of the many books written in the wake of our recent economic meltdown, this is the one that gets it right."--George A. Akerlof, coauthor of Animal Spirits and Identity Economics

"Amidst the welter of books about our financial crisis, Rajan's book stands out for several reasons: the author's intellectual distinction, his academic and real-world involvement in the problems of finance and the macroeconomy, his global perspective, his search for the roots of the financial crisis in America's growing economic inequality, and also his prescience. In 2005, Rajan foresaw the coming financial collapse--and was fiercely criticized for his insight."--Richard A. Posner, author of A Failure of Capitalism: The Crisis of '08 and the Descent into Depression

"Beautifully clear, cogent, and highly readable. This is the best book out there on the global imbalances that gave us the last financial crisis and might well give us the next one."--Kenneth S. Rogoff, coauthor of This Time Is Different: Eight Centuries of Financial Folly


Product Details

  • File Size: 534 KB
  • Print Length: 283 pages
  • Page Numbers Source ISBN: 0691152632
  • Publisher: Princeton University Press (August 8, 2011)
  • Sold by: Amazon Digital Services, Inc.
  • Language: English
  • ASIN: B005CQAJD0
  • Text-to-Speech: Enabled
  • X-Ray:
  • Lending: Not Enabled
  • Amazon Best Sellers Rank: #99,091 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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Customer Reviews

Most Helpful Customer Reviews
208 of 223 people found the following review helpful
5.0 out of 5 stars The most thought-provoking recent book. May 23, 2010
Format:Hardcover|Verified Purchase
I found this book a highly stimulating read. It represents possibly the most thought-provoking contribution in the aftermath of the crisis that started in 2007 and that yet engulfs us. Let me first summarize some of the most salient points it makes, then talk about its strengths, and finally, why everyone should read it.

The epilogue of the book summarizes the book best - "The crisis has resulted from a confusion about the appropriate roles of the government and the market. We need to find the right balance again, and I am hopeful we will." The book presents two important government distortions - the push for universal home ownership in the United States and the push for export-led growth in some countries such as Germany and China that have left to massive "global imbalances", with some countries such
as the United States, the United Kingdom and Spain persistently being in deficits and borrowing from the surplus, exporting nations. While pursuit for home ownership affordability and growth are nothing to complain about per se, the book makes sharp observations that they are occurring at the expense of something more, or as, important. In the United States, the book argues, there has been a growing income inequality, which combined with a relatively feeble safety net for the poor, has created pressure on politicians to bridge the inequality. Instead of improving the competitiveness of labor force in a global market with changing mix of industries and required skills, governments have adopted the option "let them eat credit" (Chapter One's title). The presence of government-sponsored agencies in the United States enabled exercising such an option readily through a push for priority lending to the low-income households (sub-prime mortgages).
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120 of 131 people found the following review helpful
4.0 out of 5 stars Rajan's Reply to Krugman Re: Fault Lines September 20, 2010
Format:Hardcover
In the Sept 2010 issue of the New York Review of Books, Paul Krugman & Karen Wells reviewed Fault Lines. Below is Rajan's reply to their review:

Paul Krugman and Robin Wells caricature my recent book Fault Lines in an article in the New York Review of Books.

First, Krugman starts with a diatribe on why so many economists are "asking how we got into this mess rather than telling us how to get out of it." Krugman apparently believes that his standard response of more stimulus applies regardless of the reasons why we are in the economic downturn. Yet it is precisely because I think the policy response to the last crisis contributed to getting us into this one that it is worthwhile examining how we got into this mess, and to resist the unreflective policies that Krugman advocates. The article, and their criticism, however, do have a lot to say about Krugman's policy views (for simplicity, I will say "Krugman" and "he" instead of "Krugman and Wells" and "they") which I have disagreed with in the past. Rather than focus on the innuendo about my motives and beliefs in the review, let me focus on differences of substance. I will return to why I believe Krugman writes the way he does only at the end.

My book emphasizes a number of related fault lines that led to our current predicament. Krugman discusses and dismisses two - the political push for easy housing credit in the United States and overly lax monetary policy in the years 2002-2005 - while favoring a third, the global trade imbalances (which he does not acknowledge are a central theme in my book). I will argue shortly, however, that focusing exclusively on the imbalances as Krugman does, while ignoring why the United States became a deficit country, gives us a grossly incomplete understanding of what happened.
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39 of 42 people found the following review helpful
5.0 out of 5 stars Best book on current economics May 30, 2010
Format:Hardcover|Verified Purchase
Fault Lines is the best book to appear so far on current economic challenges. While the author is very focused on US policy, good and bad, he offers the lay reader a very solid understanding of how the global system has responded to this crisis. His "fault lines" are not American problems alone but rather deep fissures in the international banking and finance systems. Europeans will be espeically interested and provoked by Rajan's arguments for a stronger American saftety net. Yes, he believes that it is morally correct to protect workers and their families who are displaced by economic turmoil. But, his primary argument is that a stronger safety net would dampen political pressure for short-term and often poorly targeted stimuli. In addition, he believes that larger, longer unemployement benefits would also make it less likely that policy makers would use easy credit as a mechanism for addressing increasing economic differences within American society. Fault Lines is a thoughtful introduction to macroeconmics, a critical analysis of current policies and a compelling call for major reforms in how the US and the world manages the global economic system.
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24 of 25 people found the following review helpful
5.0 out of 5 stars Saving Capitalism From the Politicians June 18, 2010
Format:Hardcover|Verified Purchase
In his previous book, Raghuram Rajan wanted to save capitalism from the capitalists. As he and his coauthor described, market forces can be annihilated by those bent on rent seeking and monopoly power. A few years after this first book, and in the midst of a world financial crisis, there is still ample proof that capitalists hold predatory views on capitalism, and that they want to hijack the system for their own private interest. But instead of distributing the blame for the crisis that befell upon us, Rajan argues that our post-crisis world economy needs to be saved from a new kind of threat: a combination of populist-driven politics and of geopolitical power shifts that create deep and lasting imbalances. These are the areas where he situates the fault lines that lie at the origin of the current world crisis and that, if unattended, may well provoke the next one.

In geology, fault lines are breaks in the Earth's surface where tectonic plates come in contact or collide. In using a geological metaphor, the author suggests that the cracks and imbalances in the world economy cannot be easily mended, and that they are almost beyond our control. But if mankind cannot prevent tectonic moves and earthquakes, we can build resistant buildings and improve the resilience of our economic systems. This is what Rajan proposes, in a set of recommendations that goes well beyond the usual fix in the financial sector that is now commonly discussed.

As Raghu Rajan emphasizes, his proposals are neither from the right nor from the left. They derive from his long experience as an academic originator of cutting-edge economic research, and as a decision-maker who, during three years, occupied the number-two seat at the IMF in Washington.
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Most Recent Customer Reviews
5.0 out of 5 stars Five Stars
Great Read But The Font Is Too Small
Published 14 days ago by Ramakrishnan K.
5.0 out of 5 stars Informative and effective writing. World-class thinking.
Billions of us live with fault lines running below our feet, waiting for the day they'll finally slip. Read more
Published 24 days ago by A
5.0 out of 5 stars This is probably the second best book you can read about the financial...
Rajan, now head of the Reserve Bank of India, is one of the smartest financial economists out there. Read more
Published 2 months ago by Richard N. Langlois
5.0 out of 5 stars excellent
Quick and easy read. Really enjoyed it. Highly recommended to those who want to understand our economic weakness and solutions to strengthen those weaknesses.
Published 2 months ago by C. Glupker
5.0 out of 5 stars Analysis holds up well four years after publication
I am working my way through every book about the financial crisis of 2007-09 and finally got around to this, although I was familiar from secondary sources with the first of his... Read more
Published 3 months ago by MT57
5.0 out of 5 stars bold, provocative thesis, well structured argument.
Rajan's keen insights in Fault Lines will combine with the forthcoming book by Picketty, "Capital in the Twenty-First Century" to become foundational classics. Read more
Published 7 months ago by E. Jordan
4.0 out of 5 stars Excellent Analysis and synthesising
One of the best analysis of the financial crises then and now. Well balanced, articulated and presented with minimum jargon. Read more
Published 7 months ago by Keith D. Bernard
5.0 out of 5 stars Makes you think
Written by a professor and economist and makes you consider how we got into this situation and what it will take to get out and stay out. Not a simple subject!
Published 8 months ago by Sops
4.0 out of 5 stars Economic analysis without political spin
The central theme of the book is that big economic shifts such as we saw around 2007 are much bigger than any hedge fund manager banging the close or any disaffected worker... Read more
Published 10 months ago by Seth Oldmixon
4.0 out of 5 stars There are so many idiotic economists, but Rajan is not one of them
Over simplified description of fault lines. Blaming economic newcomers such as Japan, Germany and China as major culprits for trade imbalances and tensions in global financial... Read more
Published 11 months ago by Florida windsurfer
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