Unfortunately, he was right in 2005– predicting the collapse of the financial markets 3 years later.  A controversial rock star, (not unlike our own Dr. Doom, Nouriel Roubini) Raghuram Rajan is exiting as head of India’s central bank. His unwillingness to accommodate less disciplined critics displeased politicians and businesses big and small so it was time to shoot the messenger.

Not a fan of low or negative interest rates Rajan  sees the world’s central bankers falling into a trap– where low rates become the heroin of the financial markets.  The inability to raise rates will cause distortions that could imperil the global financial markets — once again.

Here’s a prescient warning from Rajan’s 2005 paper

As plain vanilla risks can be moved off bank balance sheets into the balance sheets of investment managers, banks have an incentive to originate more of them. Thus they will tend to feed rather than restrain the appetite for risk. Banks cannot, however, sell all risks. They often have to bear the most complicated and volatile portion of the risks they originate, so even though some risk has been moved off bank balance sheets, balance sheets have been reloaded with fresh, more complicated, risks. In fact, the data suggest that despite a deepening of financial markets, banks may not be any safer than in the past. Moreover, the risk they now bear is a small (though perhaps the most volatile) tip of an iceberg of risk they have created.

He got that one right!