Rajan Indian economist, adviser to the IMF, he anticipated the 2005 financial crisis
Ekaizer ERNESTO 02/15/2011 8:30 Publico.es
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| Rajan and Rodrigo Rato.cm |
In Fault Lines (Fault Lines), his book on the Great Recession, the Indian economist Raghuram G. Rajan noted that in August 2005 had to prepare a presentation for the annual meeting convened by the Federal Reserve of Kansas City's formidable Teton Mountain Valley in the town of Jackson Hole, Wyoming, involving central bankers Worldwide, private bankers and professional economists.
It was the last meeting of Alan Greenspan as chairman of the Federal Reserve, and the debate was on "Greenspan's legacy." Rajan had been a professor of banking and finance for nearly 20 years at the University of Chicago. The suggestion received was to speak of the evolution of the financial sector over the long term management of Alan Greenspan.
Rajan warned that banks were taking risks in complex ways
By studying the graphs and statistical tables, Rajan said a curiosity. Large U.S. banks had assumed during the last decade, major risks to those of other times. Why surprised? "If the banks had taken off their balance sheets more dubious loans, selling them, should be more solid," he explains. Rajan could see that deregulation and increased competition had financialization, which had increased the incentives of bankers and fund managers to take more complex forms of risk.
It was the last meeting of Alan Greenspan as chairman of the Federal Reserve, and the debate was on "Greenspan's legacy." Rajan had been a professor of banking and finance for nearly 20 years at the University of Chicago. The suggestion received was to speak of the evolution of the financial sector over the long term management of Alan Greenspan.
Rajan warned that banks were taking risks in complex ways
By studying the graphs and statistical tables, Rajan said a curiosity. Large U.S. banks had assumed during the last decade, major risks to those of other times. Why surprised? "If the banks had taken off their balance sheets more dubious loans, selling them, should be more solid," he explains. Rajan could see that deregulation and increased competition had financialization, which had increased the incentives of bankers and fund managers to take more complex forms of risk.
"Once I noticed this trend, my lecture was written one," says Rajan. Mounted the platform and explained that, as banks kept on their books some of the risky loans [credit securities] that had been granted, if the products suffer difficulties would jeopardize the banking system as such. The banks lose confidence with respect to each other. The Indian economist could not be more prophetic: "The interbank market could freeze, and a financial crisis could have a full-fledged." Two years later, in the summer of 2007, began to occur exactly on his word.
In his book, published last year, Rajan says: "Provide at that time [August 2005] did not require a tremendous background knowledge: all I did was connect the dots, using programs that I and my colleagues had developed. However, I could not foresee the reaction of an audience usually polite. I exaggerate only slightly when I say I felt like an early Christian who was walking by a convention of half-starved lions.
IMF hung on your page The report by economist web
In his book, published last year, Rajan says: "Provide at that time [August 2005] did not require a tremendous background knowledge: all I did was connect the dots, using programs that I and my colleagues had developed. However, I could not foresee the reaction of an audience usually polite. I exaggerate only slightly when I say I felt like an early Christian who was walking by a convention of half-starved lions.
IMF hung on your page The report by economist web
Ignoring warnings
Rajan But why was so uncomfortable? "It was no criticism, because after years of discussing one's skin becomes thick. Rather, it was because the critics seemed to ignore what was happening before their eyes. Some of the presentations focused on answering whether Alan Greenspan was the best central banker in history or only one of the best. "
What would not a managing director of the International Monetary Fund (IMF) have as a chief economist Raghuram J. Rajan? As Rodrigo Rato, who arrived in June 2004 at Washington, he met Rajan, who had since October 2003, the post of economic advisor and director of research, and continued until December 2006. What did the exposure Rato Rajan? Authorized the hang on the IMF website.
The criticism made by the internal auditor to the Fund's performance during the gestation of the crisis is clear. "The IMF did not anticipate the crisis, the timing or magnitude and therefore could not warn his partners. But this is not the criterion for assess the performance. The evaluation focuses on whether the IMF identified the evolution of risks and vulnerabilities that led to the financial system to its fragile position of the IMF and the messages on these risks and weaknesses. "The report, therefore, suspended the board, management and the management team. That is, Rato and cylinder.
Rajan But why was so uncomfortable? "It was no criticism, because after years of discussing one's skin becomes thick. Rather, it was because the critics seemed to ignore what was happening before their eyes. Some of the presentations focused on answering whether Alan Greenspan was the best central banker in history or only one of the best. "
What would not a managing director of the International Monetary Fund (IMF) have as a chief economist Raghuram J. Rajan? As Rodrigo Rato, who arrived in June 2004 at Washington, he met Rajan, who had since October 2003, the post of economic advisor and director of research, and continued until December 2006. What did the exposure Rato Rajan? Authorized the hang on the IMF website.
The criticism made by the internal auditor to the Fund's performance during the gestation of the crisis is clear. "The IMF did not anticipate the crisis, the timing or magnitude and therefore could not warn his partners. But this is not the criterion for assess the performance. The evaluation focuses on whether the IMF identified the evolution of risks and vulnerabilities that led to the financial system to its fragile position of the IMF and the messages on these risks and weaknesses. "The report, therefore, suspended the board, management and the management team. That is, Rato and cylinder.
Ernesto Ekaizer account, RNE economic blog, the story of Rato (the messiah economic PP):
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