Prescient Pundits Deconstruct Forces, Actors Shaping Crisis

Two authors with “remarkable prescience” about global crisis

Too much of U.S. workforce not qualified for jobs being created

Hedge funds weathered crisis well, were also systemically sound

But two books published in 2010 by eminent authors Raghuram Rajan and Sebastian Mallaby show that there are still fresh areas to explore.

At a September 2 IMF book discussion, Special Advisor to the IMF Managing Director Min Zhu joined authors Raghuram Rajan and Sebastian Mallaby to discuss their books on the deeper forces at work during the financial crisis.

Rajan, formerly the IMF’s chief economist and now Eric J. Gleacher Distinguished Service Professor of Finance at the University of Chicago, offers in his book Fault Lines: How Hidden Fractures Still Threaten the World Economy a new perspective on factors that led to the financial collapse.

In his book More Money Than God: Hedge Funds and the Making of a New Elite Mallaby, Senior Fellow for International Economics at the Council on Foreign Relations, provides an authoritative history of hedge funds.

The two authors shared the podium at a special discussion of their works. Introducing them, Min Zhu praised the authors as “outstanding scholars” who have opened up new dimensions on the financial crisis.

Remarkable prescience

Both writers had shown remarkable prescience about the current financial crisis, Min Zhu pointed out. Rajan, the IMF’s former Director of Research immediately before the crisis, presented a paper at the 2005 Jackson Hole Conference that questioned the financial system at a time when the market was somewhat rosy. Mallaby, meanwhile, through his Washington Post column early in the crisis, had recognized that market volatility and fragility required a stronger IMF, making a case for this in an article headlined “Supersize the IMF.”

“These are not just two great authors, but these are two great, great scholars,” Min Zhu said. “They stand, although from different angles, to lead the current debate about the financial market, how to define the market, how to fix the market, how to reform the regulatory framework, and how to change the whole financial system.”

Rajan said that his book grew out of reflections on the crisis and whether the commonly blamed culprits—the “greedy bankers”—were the real ones. “I think if you just focus on the banking sector, you miss the political force that allows you to overcome the traditional checks and balances in the system” he told the...