In 2005, you attended the U.S. Federal Reserve's annual symposium in Jackson Hole, Wyoming,

and it was essentially a celebratory send-off for Alan Greenspan, the outgoing Fed Chairman.

But you, going quite against the grain, gave a talk based on a paper you'd written

that was called, has financial development made the world riskier? And your answer was a firm

yes, you argued that financial engineering and skewed incentives and banking

and elsewhere could create, and I quote you, a greater, albeit still small,

probability of a catastrophic meltdown. Again, this is 2005.

Yeah, well, let me put it this way. It was clear there was a reason for concern,

but what was comforting was that we hadn't had a crisis in major economies for 70 years.

What lessons are we to draw, we non-economists, from that severe miscalculation or mischaracterization

at least by most economists? I think there was a sense of complicancy, but differently,

we were living in well-run houses where the plumbing was not a problem, and the reality was

the plumbing was actually getting corroded by poor incentives in that system. And we didn't realize

it until it backed up in a really big way, and we said, you know, what is that smell?

I'd like you to meet today's guest. My name is Rago Rajan. I'm a professor at the University of

Chicago's Bootschool. Rajan is more than just a professor as we'll hear. That said, it's likely

you've never heard of him. You should have, and not just because he was one of the very few people

who foresaw the risk of a catastrophic meltdown that indeed came to pass in the form of a global

financial crisis and the great recession that followed. You probably remember this?

Lehman Brothers, Bankrupt, Merrill Lynch, Sold and Haste. And then this. Breaking news here,

stocks all around the world are tanking because of the crisis on Wall Street. And then this.

The federal government loans American International Group, AIG, $85 billion.

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