A pre-fab earthquake

The foreteller of the financial crash ignores a Left-Right binary, faults endemic inequality and political quick-fix

If he were that sort of person Raghuram Rajan would have said, “I told you so!” He had more reasons to say it than almost anyone. In 2005, he shocked a room full of top US policymakers and bankers in Jackson Hole. They were celebrating the legacy of Alan Greenspan, who was about to retire as the Federal Reserve chairman. Rajan argued that financial innovation (partly made possible by Greenspan’s scepticism over financial regulation) had made the world economy less safe.

“I felt like an early Christian who had wandered into a convention of half-starved lions,” recalled Rajan, who is professor of finance at the University of Chicago’s business school and formerly chief economist of the imf. One of the few to sound an alarm before 2007, Rajan was “raining on the parade” that sought to prove that Greenspan was the best central banker in history. No one likes a Cassandra; Rajan was roundly criticised for his views by a cast of luminaries. One of them was the distinguished Lawrence Summers, who now heads the National Economic Council at the White House. Summers derided Rajan for his “slightly lead-eyed premise”.

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