Banker Who Predicted 2008 Meltdown Is Worried Again

9/3/14
 
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from TIME Magazine,
8/28/14:

Back in 2005, Raghuram Rajan, then the economic counselor at the International Monetary Fund, stood up at the annual meeting of prominent economists and bankers at Jackson Hole, Wyo., and gave a presentation that his listeners could never have expected. The global economy was booming, but Rajan argued that increasingly complex markets, which spewed out complicated instruments like credit-default swaps and mortgage-backed securities in ever greater quantities, had made the financial system more vulnerable to collapse.

Rajan’s audience didn’t take him very seriously, but by 2008 his views had proved prophetic. He had all but predicted the sources of the worst financial catastrophe since the Great Depression.

Today Rajan is the governor of the Reserve Bank of India, that country’s central bank–and once more he’s seeing weakness in the global financial system. In an interview with Time in the bank’s Mumbai office, Rajan explained what worries him:

1. Long-term low interest rates are trouble

2. Supereasy money has led to the misallocation of capital

3. But quickly reversing low rates could backfire

4. There’s a lack of coordination in the global financial system–led by the U.S.

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