Raghuram Rajan on social inequality as a cause of the crisis

US economist Raghuram Rajan attributes the financial crisis among other things to social injustice and the incompetent battle against it in the US. He explains why in the business paper Világgazdaság: "Before the recent financial crisis, politicians on both camps in the United States egged on Fannie Mae and Freddie Mac, the giant government-backed mortgage agencies, to support low-income lending in their constituencies. There was a deeper concern behind this newly discovered passion for housing for the poor: growing income inequality. Since the 1970's, wages for workers at the 90th percentile of the wage distribution in the US ... have grown much faster than wages for the median worker ... such as factory workers and office assistants. ... The political response to rising inequality ... was to expand lending to households, especially low-income households. The benefits - growing consumption and more jobs - were immediate, whereas paying the inevitable bill could be postponed into the future. ... The broader implication is that we need to look beyond greedy bankers and spineless regulators ... for the root causes of this crisis. ... America needs to tackle inequality at its root, by giving more Americans the ability to compete in the global marketplace. This is much harder than doling out credit, but more effective in the long run."

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