The global recession that hit in 2008 happened as a result of the “risky” housing loans provided by the US Government to their poor. The house prices rose, the lenders defaulted and the investors around the world who’d bought the Mortgage-backed securities suffered. Some blamed the government, some blamed the financial institutions, and some blamed the poor.
The idea of poor people being able to afford houses was well intentioned. But why did it fail and who was to be blamed?
In this book, Raghuram Rajan has explored the direct and indirect reasons that led to the crisis. Just the way an earthquake occurs due to fault lines, the mortgage crisis was only a symptom of a bigger disease the plagues the economy. According to him, the major factors that induced these fault lines are income inequality, global trade imbalance that happened as a result of developing countries pushing for exports, the weak safety net in the US and the fact that governments are ready to bail out companies that they think are “too systemic to fail”.
The book was not just an explanation of the crisis, Rajan has dug deep to tell us the story of why the US government wanted poor people to own houses and why poor people were poor. And Rajan doesn’t just stop at pointing fingers, he has suggested reforms in the financial sector to prevent a similar crisis from happening again. You’ve got to listen to the man who predicted (and caused quite some controversy about) the disaster in 2005.
“The attractions of a quiet life are immense and worth fighting for”
Granted, the book is taxing, especially for someone with no background in Economics. But it’s worth reading and re-reading for so many reasons. It doesn’t stop with showing us every thing that went wrong; it also explores what can be done to right the wrong, starting with the education system. And I think this is a book everyone should be reading to understand that when the “have-nots” become the “have-nevers”, it’s everybody’s problem. And that we must be doing everything we can to build a society where every individual can lead a quiet life.