October 28, 2010

News & Opinion: And the Winner of The FT/Goldman Sachs Award Is...

By: 800-CEO-READ @ 8:43 PM – Filed under: Publishing Industry

The Financial Times and Goldman Sachs Business Book of the Year was announced last night at The Pierre in New York City, and it was something of an upset. Raghuram Rajan's Fault Lines: How Hidden Fractures Still Threaten the World Economy, released by Princeton University Press in May, beat out more widely recognized and commercially successful books like Michael Lewis's The Big Short and Andrew Ross Sorkin's Too Big to Fail (which was the runner up last night, and which we named The 800-CEO-READ Business Book of the Year in 2009).

The award was presented by Lionel Barber, FT editor and chair of the judging panel, and Lloyd Blankfein, the chief executive of Goldman Sachs who recused himself as a judge because of the number of books on the shortlist about the financial crisis—books he was a character in having been the head of a major Wall Street firm during the crisis.

From FT City Editor Andrew Hill's write up of last night's event:

Prof Rajan was the International Monetary Fund’s chief economist when he warned the 2005 Jackson Hole conference of central bankers that the seeds of disaster were being sown in the financial sector. His presentation jarred with the self-congratulatory tone of the conference, Alan Greenspan’s last as chairman of the US Federal Reserve. Prof Rajan writes in the book that the critical reaction from other participants made him feel “like an early Christian who had wandered into a convention of half-starved lions”. But within three years, his analysis had been vindicated.
And here's just an example (from the book's introduction, linked to in the quote above) of the clarity you'll find in Rajan's latest analysis:
We should ... resist the view that this is just another crisis, similar to every financial crisis before it, with real estate and foreign capital flows at its center. Although there are broad similarities in the things that go wrong in every finan­cial crisis, this one centered on what many would agree is the most sophisticated financial system in the world. What happened to the usual regulatory checks and balances? What happened to the discipline imposed by markets? What hap­pened to the private instinct for self-­preservation? Is the free-­enterprise system fundamentally broken? These questions would not arise if this were “just an­ other” crisis in a developing country. And given the cost of this crisis, we can­ not afford facile or wrong answers.

Although I believe that the basic ideas of the free-enterprise system are sound, the fault lines that precipitated this crisis are indeed systemic. They stem from more than just specific personalities or institutions. A much wider cast of characters shares responsibility for the crisis: it includes domestic politicians, foreign governments, economists like me, and people like you. Furthermore, what enveloped all of us was not some sort of collective hysteria or mania. Some­what frighteningly, each one of us did what was sensible given the incentives we faced. Despite mounting evidence that things were going wrong, all of us clung to the hope that things would work out fine, for our interests lay in that outcome. Collectively, however, our actions took the world’s economy to the brink of dis­aster, and they could do so again unless we recognize what went wrong and take the steps needed to correct it.

Hopefully, the recognition of Raghuram Rajan and his book will help those on Wall Street—many of whom, I'm sure, were in the room to congratulate him on his work last night, maybe even presenting the award to him—take a deeper look at the fissures in the system they've created and continue the process of correcting it. Hell, who am I kidding, hopefully it will help really start that process. For more on the award, head to to read excerpts from the books on the shortlist and see Andrew Hill's conversation with Professor Rajan at last night's ceremony.