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Fault Lines by Raghuram G. Rajan

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Introduction

THE FINANCIAL COLLAPSE of 2007 and the recession that followed left many economists on the defensive. News programs, magazines, pundits, and even the Queen of England all asked some variant of the question, why didn't you see it coming? Some in the economics community wrote articles or convened conferences to examine how they could have gotten it so wrong; others engaged in a full-throated defense of their profession.1 For many who were hostile to the fundamental assumptions of mainstream economics, the crisis was proof that they had been right all along: the emperor was finally shown to have no clothes. Public confidence in authority was badly shaken.

Of course, it is incorrect to say that no one saw this crisis coming. Some ...

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