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In a surprising twist to the University’s hallmark position on free markets, a noted GSB professor who is currently the youngest-ever chief economist at the IMF is calling for efforts to limit risk in the financial markets. Raghu Rajan, Joseph L. Gidwitz Distinguished Service professor of finance, expressed concern that years of deregulation and hands-off government policy have created the makings for a potential “storm in the financial markets.”
Rajan, on loan from the GSB to the IMF, has risen meteorically through the ranks of economists both at the school as well as on the international scene. He became a full professor at the GSB in just four years where he holds an endowed chair. In 2003, the American Finance Association awarded him the first Fisher Black Prize, given to the person under 40 who has contributed the most to the theory and practice of finance.
John Huizinga, Walter David "Bud" Fackler Distinguished Service professor of economics, notes Rajan is well-respected by senior faculty at the GSB. According to the Chicago Tribune, they “would line up to talk to him” as a sounding board because people had the “impression he was after the truth.”
Rajan’s path to the IMF and its goal of working to foster global monetary cooperation stems in part from his recognition of the struggles involved in establishing free markets. Some of the issues are discussed in a book Rajan co-authored with Luigi Zingales, Robert C. McCormack Professor of Entrepreneurship and Finance, entitled “Saving Capitalism from the Capitalists.” The book deals with how economic elites restrict competition to protect their own interests.
His latest concerns about market risk were formally presented at a Fed-sponsored symposium in August. In his remarks, Rajan discussed how even though there are more parties in the markets able to take risk, the risks being created are bigger. Noting the regard in which Rajan and his ideas are held by many of the world’s financial experts, Dean Snyder predicted “he’s going to go down in history as one of the most influential people at the IMF.”
Read a copy of "U. of C. star economist says risks call for, yes, regulation" that appeared in the Chicago Tribune.
In a related story, Rajan was interviewed at length by the editor of the Indian Express. Referred to as the person who's won acclaim for "his prescriptions on how to 'save capitalism from the capitalists'", the interview ran on February 21, 2006.