Frosty, the "no" man...a story of what ails US

This is an account of what ails us that is radically at odds with the familiar tale of greedy bankers in $5,000 suits...

In 2005, University of Chicago finance professor Raghuram Rajan published a paper in the proceedings of the Federal Reserve Bank of Kansas City called “Has Financial Development Made the World Riskier?” Rajan, then the chief economist at the International Monetary Fund, warned bluntly that incentive structures in the banking profession were leading to reckless credit expansion, herding, and other “perverse behaviors.” He was frostily received when he presented his findings at the Federal Reserve’s annual summer retreat in Jackson Hole that year. The Fed-linked experts who snorted at Rajan’s warnings were sure that financial innovations helped “spread risk” in a way that made the world safer. There was a fixed amount of risk in the world, they seemed to believe, and the more widely distributed it was, the better off we were. Rajan, too, thought the new products and practices “spread risk,” but in a different and more dangerous way: They multiplied it.

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. His new book, Fault Lines: How Hidden Fractures Still Threaten the World Economy, is not a coherent argument so much as a bunch of independent-minded essays on various topics in contemporary global finance.

H/T: INSTAPUNDIT (forgot this so very early this am)!