Fault Lines: How Hidden Fractures Still Threaten the World Economy

Just spotted a new article on SeekingAlpha.com. It's a book review of Raghuram G. Rajan's new book "Fault Lines: How Hidden Fractures Still Threaten the World Economy." I haven't heard of the author before, but from the book review posted on the site, it sounds like he has some really interesting points. He talks about how even though it seems like we're out of the woods, there's still a lot moving underneath the surface of the economy. Even though we have what appears to be a recovery, it's really just a pseudo economic recovery and there's a lot of tectonic activity churning underneath the surface of the U.S. and global economy.

Here's a short excerpt from the book review.

Many of the financial innovations created in the past fifty years have been purchased under the assumption that the securities acquired are independent of other instruments. We have learned that these instruments are not always independent of one another. The probability that these securities will not be independent may not be very high, but the potential costs of this loss of independence may be quite large. 

The government has introduced moral hazard into this picture by providing protection against the downside. Rajan states that the government “delivered on the guarantees to the best of its ability” and, in fact really did more than promised to protect against this downside risk... The government “now has the task of convincing the financial sector that it will not do so again.”
But the question that follows is, “How do we get the private sector to price risk properly again, without assuming government intervention?” 

Rajan concludes that “The problems emanated at the interfaces between the private sector and the government” and “we cannot do away with either side” for “realistic reforms have to work on managing the interface.” As we have seen, “The supercharged financial sector, having taken advantage of the implicit guarantees embedded in the government’s desire to push housing credit and promote employment growth, has ended up flat on its back. “
The ultimate question is how do we avoid this possibility in the future. Rajan spends the rest of the book trying to provide answers to this question.

Sounds like something worth checking out.