Never dismissed Rajan's warnings on 2008 crisis; he was ahead of the curve: Summers

Larry Summers, renowned American economist and former US Treasury Secretary, who had played down Raghuram Rajan’s warnings in 2005 on impending crisis in global financial markets, said he never really dismissed those warnings. [caption id=“attachment_2538692” align=“alignleft” width=“380”] Larry Summers and Raghuram Rajan[/caption] In an exclusive interview with Firstpost and Forbes India, Summers said Rajan, the current Reserve Bank of India (RBI) governor, was well ahead of the curve in understanding the financial markets. Summers, who had somewhat played down current RBI governor Raghuram Rajan’s warnings in 2005 about the impending financial crisis that finally shook the world in 2008-09 following the collapse of Lehman Brothers, said he never really dismissed Rajan’s warnings on systemic risks in the economy. “I also wish I had said something different on that occasion,” said Summers after seven years the crisis shook the world. “I wasn’t really dismissing warnings about systemic risks. In fact I was quite concerned about systemic risks,” Summers said. In 2005, Rajan, then the chief economist of the International Monetary Fund, in his speech at Jackson Hole Wyoming, had warned the world that deregulation of financial markets such as derivative products and technical changes have made the financial system more unstable. Rajan said excessive risk taking for short-term profit making can have far-reaching consequences in the global financial markets. Summers had then described that the speech was “largely misguided”. Explaining his stance, Summers said the point he was trying to make was that he wasn’t sure systemic risks were rooted in technological innovations rather than age old phenomenon of fear and greed in the financial sector. Summers said at the heart of the crisis was bad real estate lending rather than reasons to do with new financial instruments. “He (Rajan) was ahead of the curve and saw this (the crisis developing) with considerable urgency,” Summers said.