Easy Credit, Hard Landing

Easy Credit, Hard Landing

In 2005, University of Chicago finance professor Raghuram Rajan published a paper in the proceedings of the Federal Reserve Bank of Kansas City called “Has Financial Development Made the World Riskier?” Rajan, then the chief economist at the International Monetary Fund, warned bluntly that incentive structures in the banking profession were leading to reckless credit expansion, herding, and other “perverse behaviors.” He was frostily received when he presented his findings at the Federal Reserve’s annual summer retreat in Jackson Hole that year.

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