SHRI G.S. INSTITUTE OF TECH. & Science INDORE A

TECHNICAL REPORT

SUBMITTED TOMECHANICAL DEPARTMENT

ONTHE TOPIC OF

RAGHURAM RAJAN: RBI GOVERNOR

BY

DHARMVEER BARONIYA

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UNDER THE SUPERVISION OF

Ms. XXXXXXXXXX ASST. PROFESSOR

ME DEPT. SGSITS INDORE. RAGHURAM RAJAN: RBI GOVERNOR SHRI GS INSTITUTE OF TECHNOLOGY & SCIENCEMechanical Department

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TechnologyTable of content AbstractHistoryCareerEconomical and political viewAwardsPublicationsReserve bank of IndiaHistory of RBIStructure of RBIThe financial systemFinancial crisis 2007-2008Role of economic forecastingRaghuram rajan warn for another crisisABSTRACT

HISTORYRaghuram Govind Rajan (born 3 February 1963) is the current and the 23rd Governor of the Reserve Bank of India, having taken charge of India's central banking institution on 4 September 2013, and succeeding Duvvuri Subbarao. Rajan was chief economic adviser to India's Ministry of Finance during the previous year and chief economist at the International Monetary Fund from 2003 to 2007. He is on leave of absence as a professor of finance at The graduate business school at the University of Chicago.Raghuram G. Rajan was born 1963 in Bhopal, Madhya Pradesh in a Tamil Brahmin Family and his father was a senior officer in Indian intelligence agency. He did his Schooling from 7th to 12th standard in Delhi Public School, RK Puram and graduated from The Indian Institute of Technology, Delhi with a bachelor's degree in electrical engineering in 1985, after which he acquired a Post Graduate Diploma in Business Administration from the Indian Institute of Management Ahmadabad in 1987.He won Director's Gold Medal in IIT

Delhi and was a Gold medalist at IIM Ahmadabad. He received a Ph.D. In Management from

The MIT Sloan School of Management in 1991 for his thesis titled "Essays on Banking.

CAREERAfter graduation, Rajan joined the Booth School of Business at the University of Chicago. He Was the Chief Economist at the International Monetary Fund (IMF) from October 2003 to December 2006. Dr. Rajans research interests are in banking, corporate finance, and Economic development, especially the role finance plays in it. He co-authored Saving Capitalism from the Capitalists with Luigi Zingales in 2003. He wrote Fault Lines: How Hidden Fractures Still Threaten the World Economy in 2010, for which he was awarded the Financial Times-Goldman Sachs prize for best business book that same year. Dr. Rajan is a member of the Group of Thirty. He was the President of the American Finance Association in 2011 and is a member of the American Academy of Arts and Sciences. In November 2008, Indian Prime Minister Dr. Manmohan Singh appointed Rajan as an honorary Economic adviser. That same year, a high-level committee on financial reforms, headed by Rajan, submitted its final report to the Planning CommissionReplacing Kaushik Basu, Rajan was appointed as Chief Economic Adviser to the Government of India on 10 August 2012. He also prepared the Economic Survey for India for the year 2012-13, on 27 February. On August 6, 2013 it was announced that Rajan would take over as the next RBI Governor. He was appointed RBI Governor for a term of 3 years succeeding D Subbarao whose term ended on 4 September 2013.

In 2014 it was suggested that Rajan could take over from Christine Lagarde as head of the IMF when Lagarde steps down in 2016.

Economical and political viewsIn 2005, at a celebration honoring Alan Greenspan, who was about to retire as chairman of the US Federal Reserve, Rajan delivered a controversial paper that was critical of the financial sector. In that paper, "Has Financial Development Made the World Riskier?", Rajan "argued that disaster might loom."Rajan argued that financial sector managers were encouraged to "take risks that generate severe adverse consequences with small probability but, in return, offer generous compensation the rest of the time. These risks are known as tail risks. But perhaps the most important concern is whether banks will be able to provide liquidity to financial markets so that if the tail risk does materialize, financial positions can be unwound and losses allocated so that the consequences to the realeconomy are minimized."

The response to Rajan's paper at the time was negative. For example, former U.S. Treasury Secretary and former Harvard President Lawrence Summers called the warnings misguided and Rajan himself a "luddite".However, following the 2008 economic crisis, Rajan's views came to be seen as prescient; by January 2009, The Wall Street Journal proclaimed that now, "few are dismissing his ideas." In fact, Rajan was extensively interviewed on the global crisis for the Academy Award winning documentary film Inside Job. Rajan wrote in May 2012 that the causes of the ongoing economic crisis in the U.S. and Europe in the 20082012 period were substantially due to workforce competitiveness issues in the globalization era, which politicians attempted to "paper-over" with easy credit. He proposed supply-side solutions of a long-term structural or national competitiveness nature: "The industrial countries should treat the crisis as a wake-up call and move to fix all that has been papered over in the last few decades... Rather than attempting to return to their

artificially inflated GDP numbers from before the crisis, governments need to address the underlying flaws in their economies. In the United States, that means educating or retraining the workers who are falling behind, encouraging entrepreneurship and innovation, and harnessing the power of the financial sector to do good while preventing it from going off track. In southern Europe, by contrast, it means removing the regulations that protect firms and workers from competition and shrinking the government's presence in a number of

areas, in the process eliminating unnecessary, unproductive jobs."

During May 2012, Rajan and Paul Krugman expressed alternate views on how to reinvigorate the economies in the U.S. and Europe, with Krugman mentioning Rajan by name in an opinion editorial. In an article in Foreign Affairs magazine, Rajan had advocated structural or supply-side reforms to improve competitiveness of the workforce to better adapt to globalization, while also supporting fiscal austerity measures (e.g., raising taxes and cutting spending). Rajan conceded that austerity could slow economies in the short-run and cause

significant "pain" for certain constituencies. Krugman rejected this view, advocating instead traditional Keynesian fiscal stimulus (e.g., spending and investment) and monetary stimulus, arguing the primary factor slowing the developed economies was a general shortfall in demand across all sectors of the economy, not structural or supply-side factors that affected particular sectors.This debate occurred against the backdrop of a

significant "austerity vs. stimulus" debate occurring at the time, with some economists arguing one side or the other or a combination of both strategies.In a 2014 interview, Rajan said his major targets as governor of the Reserve Bank of India

were to lower inflation, increase savings and deepen financial markets, of which he believed

reducing inflation was the most important. A panel he appointed proposed an inflation target

for India of 6% for January 2016 and 4% (+-2%) thereafter.AWARDsIn 2003, he won the Fischer Black Prize awarded by the American Finance Association for Contributions to the theory and practice of finance by an economist under age 40. He was Awarded the fifth Deutsche Bank Prize for Financial Economics 2013 on 26 September 2013 For his "ground-breaking research work which influenced financial and macro-economic Policies around the world". He was conferred the Best Central Bank Governor award for 2014 by Euromoney Magazine. He is conferred with the prestigious Governor of the Year

Award - 2014 from London based financial journal Central Banking.

Publications

Saving Capitalism from the Capitalists, was co-authored with fellow Chicago Booth professor Luigi Zingales and published in 2004. Fault Lines: How Hidden Fractures Still Threaten the World Economy, published in 2010, has won the Financial Times and Goldman Sachs Business Book of the Year Award for 2010.

He has also published numerous articles in finance and economics journals including the American Economic Review, Journal of Economic Perspectives, Journal of Political Economy, Journal of Financial Economics, Journal of Finance and Oxford Review of Economic Policy. The True Lessons of the Recession; The West Cant Borrow and Spend Its Way to Recovery by Rajan in May/June 2012 Foreign Affairs Several of Dr. Rajan's opinion editorials are available at: Rajan-Project Syndicate Opinion Editorials

Reserve Bank of India

The Reserve Bank of India is India's Central Banking Institution, which controls the Monetary Policy of the Indian Rupee. It commenced its operations on 1 April 1935during the British Rule in accordance with the

provisions of the Reserve Bank of India Act,1934.The original share capital was divided

into shares of 100 each fully paid, which were initially owned entirely by private shareholders. Following Indias independence on 15 - August - 1947, the RBI was nationalized in the year of 1 January1949.

The RBI plays an important part in the Development Strategy of the Government of

India. It is a member bank of the Asian Clearing Union. The general superintendence and direction of the RBI is entrusted with the21-member Central Board of Directors: the Governor (Dr. Raghuram Rajan), 4 Deputy Governors, 2 Finance Ministry representatives, 10 government-nominated directors to represent important elements from India's economy, and 4 directors to represent local boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these local boards consists of 5members who represent regional interests, and the interests of co-operative and indigenous banks.

The bank is also active in promoting financial inclusion policy and is a leading member of the Alliance for Financial Inclusion (AFI).

HISTORY OF RBI19351950The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles after the First World War.RBI was conceptualized as per the guidelines, working style and outlook presented by Dr. B. R. Ambedkar as written in his book The Problem of the Rupee Its origin and its solution. in front of the Hilton Young Commission. The bank was set up based on their commendations of the 1926 Royal Commission on Indian Currency and Finance, also known as the HiltonYoung Commission. The original choice for the seal of RBI was The East India Company Double Mohur, with the sketch of the Lion and Palm Tree. However it was decided to replace the lion with the tiger, the national animal of India.

The Preamble of the RBI describes its basic functions to regulate the issue of bank notes,

keep reserves to secure monetary stability in India, and generally to operate the currency and credit system in the best interests of the country. The Central Office of the RBI was established in Calcutta (now Kolkata), but was moved to Bombay (now Mumbai) in 1937. The RBI also acted as Burma's central bank, except during the years of the Japanese occupation of Burma (194245), until April 1947, even though Burma seceded from the Indian Union in 1937. After the Partition of India in 1947, the bank served as the central bank for Pakistan until June 1948 when the State Bank of Pakistan commenced operations. Though set up as a shareholders bank, the RBI has-been fully owned by the Government of India since its nationalization in 1949.

19501960In the 1950s the Indian government, under its first Prime Minister Jawaharlal Nehru, developed a centrally planned economic policy that focused on the agricultural sector.

The administration nationalized commercial banks and established, based on the Banking Companies Act of 1949 (later called the Banking Regulation Act), a central bank regulation as part of the RBI. Furthermore, the central bank was ordered to support the economic plan with loans.

19601969

As a result of bank crashes, the RBI was requested to establish and monitor a deposit insurance system. It should restore the trust in the national bank system and was Initialized on 7 December 1961. The Indian government found funds to promote the economy and used the slogan "Developing Banking". The government of India restructured the national bank market and nationalized a lot of institutes. As a result, the RBI had to play the central part of control and support of this public banking sector.

19691985

In 1969, the Indira Gandhi-headed government nationalized 14 major commercial banks. Upon Gandhi's return to power in 1980, a further six banks were nationalized. The regulation of the economy and especially the financial sector was reinforced by the Government of India in the 1970s and 1980s. The central bank became the central player and increased its policies for a lot of tasks like interests, reserve ratio and visible

deposits.These measures aimed at better economic development and had a huge effect on the company policy of the institutes. The banks lent money in selected sectors, like agri-business and small trade companies.

The branch was forced to establish two new offices in the country for every newly established office in a town. The oil crises in 1973 resulted in increasing inflation, and the RBI restricted monetary policy to reduce the effects.

19851991

A lot of committees analyzed the Indian economy between 1985 and 1991. Their results had an effect on the RBI. The Board for Industrial and Financial Reconstruction, the Indira Gandhi Institute of Development Research and the Security & Exchange Board of India investigated the national economy as a whole, and the security and exchange board proposed better methods for more effective markets and the protection of

investor interests. The Indian financial market was a leading example for so-called "financial repression" (Mackinnon and Shaw).The Discount and Finance House of India began its operations on the monetary market in April 1988; the National Housing Bank, founded in July 1988, was forced to invest in the property market and a new financial law improved the versatility of direct deposit by more security measures and liberalization.

19912000

The national economy came down in July 1991 and the Indian rupee was devalued. The currency lost 18% relative to the US dollar, and the Narsimham Committee advised restructuring the financial sector by a temporal reduced reserve ratio as well as the statutory liquidity ratio. New guidelines were published in 1993 to establish a private banking sector. This turning point should reinforce the market and was often called neoliberal. The central bank deregulated bank interests and some sectors of the financial market like the trust and property markets. This first phase was a success and the central government forced a diversity liberalization to diversify owner structures in

1998.

The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed nationalized banks in July to interact with the capital market to reinforce their capital base. The central bank founded a subsidiary companythe Bharatiya Reserve Banknote Mudran Private Limitedin February 1995 to produce banknotes.

Since 2000

The Foreign Exchange Management Act from 1999 came into force in June 2000. It should improve the item in 20042005 (National Electronic Fund Transfer).The Security Printing & Minting Corporation of India Ltd., a merger of nine institutions, was founded in 2006 and produces banknotes and coins.

The national economy's growth rate came down to 5.8% in the last quarter of 2008 2009 and the central bank promotes the economic development.Structure of RBICentral Board of Directors

The Central Board of Directors is the main committee of the Central Bank. The Government of India appoints the directors for a 4-year term. The Board consists of a Governor, and not more than 4 Deputy Governors, 4 Directors to represent the regional boards, 2 from the Ministry of Finance and 10 other directors from various

fields. The central bank now wants to create a post of Chief Operating Officer(COO) and reallocate work between the five of them(4 Deputy Governor and COO).

Governors

The Governor of RBI is Raghuram Rajan. There are 4 Deputy Governors, Deputy Governor H R Khan, Dr Urjit Patel, R Gandhi and S S MUNDRA. Dr. Urjit Patel became Deputy Governor in January 2013. One of the four Deputy Governors is traditionally from RBI ranks, and is selected from the Bank's Executive Directors. As for the rest, one is nominated from among the Chairpersons of Public Sector Bank, and the other is an economist of repute . It is also often seen that an officer of Indian Administrative Service is appointed Deputy Governor of RBI and later as the Governor of RBI. The case of Y. Venugopal Reddy, an officer of Indian Administrative Service batch of 1964 is a noted example for this trend in the RBI.

Supportive bodies

The Reserve Bank of India has four regional representations: North in New Delhi, South in Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members, appointed for four years by the central government and servebeside the advice of the Central Board of Directorsas a forum for regional banks and to deal with delegated tasks from the central board. The institution has 22 regional offices. The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD committee to control the financial institutions. It has four members, appointed for two years, and takes measures to strength the role of statutory auditors in the financial sector, external monitoring and internal controlling systems. The Tarapore committee was set up by the Reserve Bank of India under the chairmanship of former RBI deputy governor S.S.Tarapore to "lay the road map" to capital account convertibility. The five-member committee recommended a three-year time frame for complete convertibility by 19992000. On 1 July 2007, in an attempt to enhance the quality of customer service and strengthen the grievance redressed mechanism, the Reserve Bank of India created a new customer service department.

Offices and branches

The Reserve Bank of India has four zonal offices. It has 19 regional offices at most state capitals and at a few major cities in India. Few of them are located in Ahmedabad, Bangalore, Bhopal, Bhubaneswar,Chandigarh, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, Patna, and Thiruvananthapuram. It also has 09 sub-offices located in Samana, Dehradun, Gangtok, Kochi, Panaji, Raipur, Ranchi, Shillong, Shimla , Srinagar and Agartala . The bank has also two training colleges for its officers, viz. Reserve Bank Staff College at Chennai and College of Agricultural Banking at Pune. There are also four Zonal Training Centres at Mumbai, Chennai, Kolkata and New Delhi.the financial systemThe institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions. Its objectives are to maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective addressing of complaints by bank customers. The RBI controls the monetary supply, monitors economic indicators like the gross domestic product and has to decide the design of the rupee banknotes as well as coins.

Managerial of exchange control

The central bank manages to reach different goals of the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.Issuer of currencyThe bank issues and exchanges or destroys currency notes and coins that are not fit for circulation. The objectives are giving the public adequate sups of RBI are to issue banknotes, to maintain the currency and credit system of the country to utilize it in its best advantage, and to maintain the reserves. RBI maintains the economic structure of the country so that it can achieve the objective of price stability as well as economic

development, because both objectives are diverse in themselves. For printing of notes, the Security Printing and Minting Corporation of India Limited (SPMCIL), a wholly owned company of the Government of India, has set up printing presses at Nashik, Maharashtra and Dewas, Madhya Pradesh. The Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL), a wholly owned subsidiary of the Reserve Bank, also has setup printing presses at Mysore in Karnataka and Salboni in West Bengal. In all, there are four printing presses. And for minting of coins, SPMCIL has four mints at Mumbai, Noida (UP), Kolkata and Hyderabad for coin production.Banker's bankRBI also works as a central bank where commercial banks are account holders and can deposit money.RBI maintains banking accounts of all scheduled banks. Commercial banks create credit. It is the duty of the RBI to control the credit through the CRR, bank rate and open market operations. As banker's bank, the RBI facilitates the clearing of cheques between the commercial banks and helps inter-bank transfer of funds. It can grant financial accommodation to schedule banks. It acts as the lender of the last resort by

Providing emergency advances to the banks. It supervises the functioning of the commercial banks and take action against it if need arises.

Detection of fake currency

In order to curb the fake currency menace, RBI has launched a website to raise awareness among masses about fake notes in the market.www.paisaboltahai.rbi.org.in provides information about identifying fake currency.

On January 22, 2014; RBI gave a press release stating that after March 31, 2014, it will completely withdraw from circulation all banknotes issued prior to 2005. From April 1, 2014, the public will be required to approach banks for exchanging these notes. Banks will provide exchange facility for these notes until further communication. The Reserve Bank has also clarified that the notes issued before 2005 will continue to be legal tender. This would mean that banks are required to exchange the notes for their customers as well as for non-customers. From July 1, 2014, however, to exchange more than 10 pieces of `500 and `1000 notes, non-customers will have to furnish proof of identity and residence to the bank branch in which she/he wants to exchange the notes. This move from the Reserve Bank is expected to unearth black money held in cash. As

the new currency notes have added security features, they would help in curbing the menace of fake currency.Developmental role

The central bank has to perform a wide range of promotional functions to support National objectives and industries. The RBI faces a lot of inter-sect oral and local Inflation-related problems. Some of these problems are results of the dominant part of the public sector.

Related functions

The RBI is also a banker to the government and performs merchant banking function for the central and the state governments. It also acts as their banker. The National Housing Bank (NHB) was established in 1988 to promote private real estate acquisition. The Institution maintains banking accounts of all scheduled banks, too. RBI on 7 August 2012 said that Indian banking system is resilient enough to face the stress caused by the

Drought like situation because of poor monsoon this year.

Reserve requirement cash reserve ratio (CRR)

Every commercial bank has to keep certain minimum cash reserves with Reserve Bank of India. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate. Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, theReserve Bank could prescribe CRR for scheduled banks between 5% and 20% of total of their demand and time liabilities. RBI uses this tool to increase or decrease the reserve requirement depending on whether it wants to effect a decrease or an increase in the money supply. An increase in Cash Reserve Ratio (CRR) will make it mandatory on the part of the banks to hold a large proportion of their deposits in the form of deposits with

the RBI. This will reduce the size of their deposits and they will lend less. This will in turn decrease the money supply.

Statutory liquidity ratio (SLR)

Apart from the CRR, banks are required to maintain liquid assets in the form of gold, cash and approved securities. Higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans and advances, thus it is an anti-inflationary impact. A higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved securities. In well-developed economies, central banks use open market operationsbuying and selling of eligible securities by central bank in the marketto influence the volume of cash reserves with commercial banks and thus influence the volume of loans and advances they can make to the commercial and industrial sectors. In the open money market, government securities are traded at market related rates of interest. The RBI is resorting more to open market operations in the more recent years. Generally RBI uses three kinds of selective credit controls:

1. Minimum margins for lending against specific securities.

2. Ceiling on the amounts of credit for certain purposes.

3. Discriminatory rate of interest charged on certain types of advances.

Direct credit controls in India are of three types:

1. Part of the interest rate structure, i.e., on small savings and provident funds, is administratively set.

2. Banks are mandatory required to keep 21.50% of their deposits in the form of government securities.

3. Banks are required to lend to the priority sectors to the extent of 40% of their advances.

Financial crisis of 200708

The financial crisis of 20072008, also known as the Global Financial Crisis and 2008 financial crisis, is considered bymany economists to have been the worst financial crisis since the Great Depression of the 1930s. It threatened the total collapse of large financial institutions, which was prevented by the bailout of banks by national governments, but stock markets still dropped worldwide. World map showing real GDP growth rates for 2009 In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a downturn in economic activity leading to the 20082012 global recession and contributing to the European sovereign-debt crisis. The active phase of the crisis, which manifested as a liquidity crisis, can be dated from August 9, 2007, when BNP Paribas terminated withdrawals from three hedge funds citing "a complete

evaporation of liquidity".The bursting of the U.S. (United States) housing bubble, which peaked in 2006, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.The financial crisis was triggered by a complex interplay of policies that encouraged home ownership, providing easier access to loans for (lending) borrowers, overvaluation of bundled subprime mortgages based on the theory that housing prices would continue to escalate, questionable trading practices on behalf of both buyers and sellers, compensation structures that prioritize short-term deal flow over long-term value creation, and a lack of adequate capital holdings from banks and insurance companies to back the financial commitments they were making. Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined. Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts. In the U.S., Congress passed the American Recovery and Reinvestment Act of 2009. Many causes for the financial crisis have been suggested, with varying weight assigned by experts. The U.S. Senate's LevinCoburn Report concluded that the crisis was the result of "high risk, complex financial products; undisclosed conflicts of interest; the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street."The Financial Crisis Inquiry Commission concluded that the financial crisis was avoidable and was caused by "widespread failures in financial regulation and supervision," "dramatic failures of corporate governance and risk management at many systemically important financial institutions," "a combination of excessive borrowing, risky investments, and lack of transparency" by financial institutions, ill preparation and inconsistent action by government that "added to the uncertainty and panic," a "systemic breakdown in accountability and ethics," "collapsing mortgage-lending standards and the mortgage securitization pipeline," deregulation of over-the-counter derivatives, especially credit default swaps, and "the failures of credit rating agencies" to correctly price risk.The 1999 repeal of the Glass-Steagall Act effectively removed the separation between investment banks and depository banks in the United States. Critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st-century financial markets.

Research into the causes of the financial crisis has also focused on the role of interest rate spreads.

In the immediate aftermath of the financial crisis palliative fiscal and monetary policies were adopted to lessen the shock to the economy. In July 2010, the DoddFrank regulatory reforms were enacted in the U.S. to lessen the chance of a recurrence.Role of economic forecastingThe financial crisis was not widely predicted by mainstream economists, who instead spoke of the Great Moderation. Anumber of heterodox economists predicted the crisis, with varying arguments. Dirk Bezemer in his research credits(with supporting argument and estimates of timing) 12 economists with predicting the crisis: Dean Baker (US), WynneGodley (UK), Fred Harrison (UK), Michael Hudson (US), Eric Janszen (US), Steve Keen (Australia), Jakob Brchner Madsen & Jens Kjaer Srensen (Denmark), Kurt Richebcher (US), Nouriel Roubini (US), Peter Schiff (US), and Robert Shiller (US).Examples of other experts who gave indications of a financial crisis have also been given. Not surprisingly, the Austrian economic school regarded the crisis as a vindication and classic example of a predictable credit-fueled bubble that could not forestall the disregarded but inevitable effect of an artificial, manufactured laxity in monetary supply, a perspective that even former Fed Chair Alan Greenspan in Congressional testimony confessed himself forced to return to.

A cover story in BusinessWeek magazine claims that economists mostly failed to predict the worst international economic crisis since the Great Depression of the 1930s. The Wharton School of the University of Pennsylvania's online business journal examines why economists failed to predict a major global financial crisis.[166] Popular articles published in the mass media have led the general public to believe that the majority of economists have failed in their obligation to predict the financial crisis. For example, an article in the New York Times informs that economist Nouriel Roubini warned of such crisis as early as September 2006, and the article goes on to state that the profession of economics is bad at predicting recessions. According to The Guardian, Roubini was ridiculed for predicting a collapse of the housing market and worldwide recession, while The New York Times labelled him "Dr. Doom". Shiller, an expert in housing markets, wrote an article a year before the collapse of Lehman Brothers in which he predicted that a slowing U.S. housing market would cause the housing bubble to burst, leading to financial collapse. Schiff regularly appeared on television in the years before the crisis and warned of the impending real estate collapse. Within mainstream financial economics, most believe that financial crises are simply unpredictable,following Eugene Fama's efficient-market hypothesis and the related random-walk hypothesis, which state respectively that markets contain all information about possible future movements, and that the movement of financial prices are random and unpredictable.

Recent research casts doubt on the accuracy of "early warning" systems of potential crises, which must also predict their timing. Stock trader and financial risk engineer Nassim Nicholas Taleb, author of the 2007 book The Black Swan, spent years warning against the breakdown of the banking system in particular and the economy in general owing to their use of bad risk models and reliance on forecasting, and their reliance on bad models, and framed the problem as part of "robustness and fragility". He also took action against the establishment view by making a big financial bet on banking stocks and making a fortune from the crisis ("They didn't listen, so I took their money"). According to David Brooks from the New York Times, "Taleb not only has an explanation for whats happening, he saw it coming."RBI governor Raghuram Rajan

warns of another market crash(august-2014)The RBI governor expressed fears that central banks "may be exhausting room on the financial side and creating a situation where there will be a discontinuous movement in the financial sector."

Reserve Bank governor Raghuram Rajan has warned that global markets are at the risk of a "crash" due to the lingering competitive loose monetary policies being followed by the developed economies. Warning that the current build-up of financial sector imbalances may cause sudden price reversals and sharp spikes in volatility, Rajan said, "we are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost".

In an interview to London-based 'Central Banking Journal' on Wednesday, he said, "unfortunately, a number of macro- economists have not fully learned the lessons of the great financial crisis. They still do not pay enough attention - en passant - to the financial sector. Financial sector crises are not as predictable. The risks build up until, wham, it hits you".The governor expressed fears that central banks "may be exhausting room on the financial side and creating a situation where there will be a discontinuous movement in the financial sector."

Discounting arguments from a section of economists that asset price hike is not due to credit growth, Rajan said problems do not appear to be arising from credit growth although this is an issue in some emerging markets.

"They (global investors) put trades on even though they know what will happen as everyone attempts to exit positions at the same time, there will be major market volatility," the RBI chief said. Reiterating his warnings that emerging markets are especially vulnerable to big shifts incapital flows brought on by unprecedented monetary accommodation in rich nations, Rajan warned, "there will be major market volatility if such a crash occurs. True, it may not happen if we can find a way to unwind everything steadily. But it is a big hope and a prayer".

The former IMF chief economist, who famously predicted the 2008 financial meltdown three years before at an event in US from which the global economy is yet to recover fully, compared the current global markets to the 1930s which marked the worst recession in the financial history.

Stating that the Great Depression was due to a long period of competitive devaluation of national currencies, Rajan said, "we are back to the 1930s, in a world of competitive easing. "Back then, it was competitive devaluation, but competitive easing could lead to competitive devaluation. If there were no consequences, to competitive easing, fine; but there are consequences." The central banks of the rich nations are now engaged in ever more accommodative policies, he said, and called for more coordination between the major monetary

authorities. Rajan first made this demand early this year in Sydney during the BRICS finance ministers and central bankers summit. He repeated the same at the annual summit of the World Bank group in Washington a few months later. Calling for more policy co-ordination and research into effects of central bank policy

spillover and spill-backs, he said monetary policy changes by the developed world central banks can cause "substantial levels of uncertainty" at a time that may suit the policy instigator but not be convenient for other central banks, especially in the emerging markets.

Welcoming the IMF recent statement that it would "examine" monetary policies of major central banks to check their net benefits, the Governor said this is a major change in the

international organination's stance.

"The sensitivity this kind of discussion raises in central banks will make them think about the value of policies and whether they are helpful elsewhere."

"I have no doubt that countries will still do what is largely in their interests. But over time we need a little more effort looking at the global interest. My sense is that once the debate is engaged, we will figure out a way to move in that direction," the ex-Chicago University professor said.

Expressing concerns about the impact of investors quitting emerging markets all at once after buying heavily into assets inflated by these loose central bank policies, he said continued failure of leading economies to comprehend the dangers of financial cycle pose significant risks to the global economy.REFERENCES