Raghuram Rajan was one of the few economists who warned of the global financial crisis before it hit. Now, as the world struggles to recover, it’s tempting to blame what happened on just a few greedy bankers who took irrational risks and left the rest of us to foot the bill. In Fault Lines, Rajan argues that serious flaws in the economy are also to blame, and warns that a potentially more devastating crisis awaits us if they aren’t fixed.

Rajan shows how the individual choices that collectively brought about the economic meltdown–made by bankers, government officials, and ordinary homeowners–were rational responses to a flawed global financial order in which the incentives to take on risk are incredibly out of step with the dangers those risks pose.

He traces the deepening fault lines in a world overly dependent on the indebted American consumer to power global economic growth and stave off global downturns. He exposes a system where America’s growing inequality and thin social safety net create tremendous political pressure to encourage easy credit and keep job creation robust, no matter what the consequences to the economy’s long-term health; and where the U.S. financial sector, with its skewed incentives, is the critical but unstable link between an overstimulated America and an underconsuming world.

In Fault Lines, Rajan demonstrates how unequal access to education and health care in the United States puts us all in deeper financial peril, even as the economic choices of countries like Germany, Japan, and China place an undue burden on America to get its policies right. He outlines the hard choices we need to make to ensure a more stable world economy and restore lasting prosperity.

Contemporary higher education is…an absurdly expensive, time-consuming way to guarantee intellectual and personality traits that could be measured far more easily, cheaply and reliably by other means. Thorstein Veblen explained most of this perfectly clearly in his 1914 book The Higher Learning in America, but, as usual, his insights were nervously appreciated and then promptly forgotten.

Elsewhere in the book:

Young people have always shown an uncanny knack for allocating their time and energy to emerging new modes of trait display that bring them the highest social and sexual payoffs.

…To young people today, mobile phones, social networking and MMOGs are awesomely efficient ways to short-circuit consumerist conventions of trait display. Instead of spending years to get an education credential, to get a high-paying job, to buy premium products, to display one’s intelligence and personality traits to potential mates and friends, the kids are just displaying their traits directly through the new communications technologies.

Virtual simulations, labs and tutorials allow for continuous feedback that helps the student along. The student’s progress is tracked step by step, and that information is then used to make improvements to the course. Several studies have shown that students learn a full semester’s worth of material in half the time when the online coursework is added. More students stick with the class, too. “We now have the technology that enables us to go back to what we all know is the best educational experience: personalized, interactive engagement,” Dr. Smith says.

From elsewhere in the article:

P2PU’s mission isn’t to develop a model and stick with it. It is to “experiment and iterate,” says Ms. Paharia, the former executive director of Creative Commons. She likes to talk about signals, a concept borrowed from economics. “Having a degree is a signal,” she says. “It’s a signal to employers that you’ve passed a certain bar.” Here’s the radical part: Ms. Paharia doesn’t think degrees are necessary. P2PU is working to come up with alternative signals that indicate to potential employers that an individual is a good thinker and has the skills he or she claims to have — maybe a written report or an online portfolio.

Er, like prices that reflect peer ratings of work samples, and rankings in prediction markets?

153 million students are now enrolled at universities around the world, a 53 percent jump in just nine years. With many nations unable to keep up with this growing demand, students have strong incentives to seek higher education wherever they can find it.

…The latest sensation that’s grabbing the attention of netizens is BlogShares (www.blogshares.com), an online stock market in which you get to speculate on the future of your favourite blogs.

…In many ways, BlogShares simulates the working of a real stock exchange. Blogs are to BlogShares what companies are to stock markets, and links are the assets that drive valuations. Every player gets 500 BlogShare dollars upon signup. There are thousands of virtual dollars to be made in the BlogShares market as long as you stick to the thumb rule of dealing in stocks: buy low, sell high.

…At the end of a three-week phase of beta testing, there were a staggering 40,000 listed blogs. Over 5000 active players carry out thousands of transactions every day, sending valuations of some blogs to dizzying heights.

As companies turn to the web to mine for prospective job candidates, it’s no longer advantageous to refrain from broadcasting personal information. Instead, the new imperative is to present your professional skills as attractively as possible, packing your profile with keywords (marketing manager, global sourcing specialist) that will send your name to the top of recruiters’ searches.

At the same time, you can connect your online professional interactions in one place, joining groups on the site (LinkedIn has more than 500,000 of them, based on companies, schools, and affinities), offering advice, and linking your Twitter account and blog updates to your profile.

From elsewhere in the article:

More than 60 million members have logged on to create profiles, upload their employment histories, and build connections with people they know. Visitors to the site have jumped 31% from last year to 17.6 million in February. They include your customers. Your colleagues. Your competitors. Your boss. And being on LinkedIn puts you in the company of people with impressive credentials: The average member is a college-educated 43-year-old making $107,000. More than a quarter are senior executives. Every Fortune 500 company is represented. That’s why recruiters rely on the site to find even the highest-caliber executives: Oracle (ORCL, Fortune 500) found CFO Jeff Epstein via LinkedIn in 2008.

Can you outline, even really roughly, the process of scriptwriting?

There would be a series of planning sessions. First, at the beginning of every season, we did a sort of retreat with the main writers, the guys who were going to be on staff the whole year. We’d discuss what we were trying to say, but we were really having a current-events/ideology/political argument. The writers didn’t all think the same. We weren’t in lockstep on the issues of the day, whether it was the drug war or public education or the media. So we had to discuss the issue as an issue first. Never mind the characters, never mind plot.

…If there’s anything that distinguishes The Wire from a lot of the serialized drama you see, it was that the writers were not from television. None of us grew up thinking we wanted to get to Hollywood and write a TV show or a movie. Ed [Burns] was a cop, and then he was a schoolteacher. There were journalists on the writing staff. There were novelists. There were playwrights, too. Everyone began somewhere else.

Between seasons of a lot of hit shows, adjustments will be made that are clearly based on network notes about what’s perceived to be most popular with viewers.

We never had that dynamic in our heads. What we were asking was, “What should we spend 12 hours of television saying?” And that’s a journalistic impulse. That was coming from the Wire writers who were journalists and, to an extent, the novelists who wrote for the show who write in a realistic framework, like researched fiction.

…It’s impossible to say because the entire run of the series is one big story. I don’t think someone can dislike season 2 but still really appreciate what comes after it. It’s all essential and cumulative.

I know there are some artificial divisions in terms of when we end it for a season, and we’ll end it at a certain point that gives it some resonance. I guess you can debate that. But it’s like, to me, season 1 is the weakest. It created the crucible, the core values of what we were going to build beyond. It did everything it was supposed to do, but to me something happens in seasons 3, 4, and 5 and it’s informed by everything you’ve seen in 36 or 48 or 60 episodes.

Definitely.

So the notion that it was in this pure state early on and then we spun deeper and deeper? No, no, no, it’s the exact opposite. We were building toward the last 15 minutes of the show—and doing so for a long time.

…I’ve always wondered how much of a character’s ultimate arc was known to you and how early it was known. For instance, did Omar always have to die? Did Carcetti always have to become governor? Was it just built into their DNA as characters?

It was. It was built in. You have to know where you’re going…

…It’s impressive that HBO took the ride for this entire series.

We didn’t know if we were going to get five seasons, and I certainly didn’t go to HBO at the beginning and say, “We’re going to build a whole city and there’ll be this über-theme and it’ll all build to this point where it’s an indictment of—” They would have laughed me out of the room and said, “What the fuck was that guy talking about?”

…So the first thing I said was, “Through the course of a police investigation you’re going to see the fraud of the drug war. You’re going to see how the drug war is not worth it and how nothing works the way we think it does when you establish prohibition.” And then it was after we came back to talk about season 2 that I had the honest conversation with Chris Albrecht and Carol Strauss from HBO about building a city. They said they could give me this and this and this.

…One of the reasons they renewed for seasons 4 and 5 was that I was able to go in to them with beat sheets for every episode, for the remaining… I think I had 22 episodes. But I didn’t have specific episodes for season 4 or 5. I had storyboards for all of the characters, and I could tell them where everyone was going and what the theme not only of season 4 was, but of season 5—and how they were connected.

I was able to say to Chris Albrecht, “If you’re in for a penny you’re in for a pound. You’re gonna have a hard time canceling it after season 4 because all these bodies are going to be in these houses and they’re going be discovered.”

…So he was in for a penny, in for a pound. That was liberating in a way. And we knew where all the characters had to go no matter what. Clay Davis has to survive. No matter what, Carcetti has to thrive. He has to become governor. The city can go to hell, but he has to become governor.

…You proceed from theme into character.

First you do a bunch of reporting. You feel like you know the subject and then you ask, “What do we want to say that hasn’t been said and that deserves to be said?” That was the first question we asked ourselves at the beginning of every season.

…I can’t begin to write one black character—much less 30—and have them all be distinct and different and represent different things if I don’t have some core understanding of where they came from. Not just them and their parents, but culturally—what they’ve acquired and what they expect of the world and what the world expects of them as blacks, as Catholics, as Jews, as whoever, as marines, as fuckin’ South Texas Mexican marines serving in Iraq. So I’m standing on a lot of literature that has come before and that is contemporaneous with me.

The thing Eisman had found was indeed a goldmine, but it wasn’t true that no one else knew about it. By the fall of 2006, Greg Lippman had made his case to maybe 250 big investors privately, and to hundreds more at Deutsche Bank sales conferences or on Deutsche Bank conference calls. By the end of 2006, according to the PerTrac Hedge Fund Database Study, there were 13,765 hedge funds reporting results, and thousands of other types of institutional investors allowed to invest in credit default swaps. Yet only a hundred or so of them dabbled in the new market for credit default swaps on subprime mortgage bonds. Most bought insurance on subprime mortgages not as an outright bet against them, but as a hedge against their implicit bet on them — their portfolios of U.S. real estate-related stocks or bonds. A smaller group used credit default swaps to make what often turned out to be spectacularly disastrous gambles on the relative value of subprime mortgage bonds — buying one subprime mortgage bond while selling another.

…A smaller number of people — more than ten, fewer than twenty — made a straightforward bet against the entire multi-trillion-dollar subprime mortgage market and, by extension, the global financial system. In and of itself it was a remarkable fact: The catastrophe was forseeable, yet only a handful noticed.

By spring 2008, two and a half years after the pilot was ordered, they agreed on a draft that they would take to HBO, beginning what tends to be a perilous stage in the development of a series, when the executives charged with paying for production have their say. “On one script,” Overmyer says of an experience developing a show with a different network, “I counted it up: I actually got 72 separate sets of notes — from the production company, the studio, the network — many of them contradictory.” The most memorable note Overmyer ever received was from an executive very high up at a network. “She said, ‘They’re being so unpleasant with each other.’ And I said: ‘Well, that’s drama. That’s conflict.’ And she actually said, ‘Could we have the drama…without the conflict?’ ”

At that moment, on the basis of what he’d written on his blog, he went from being an indebted medical resident with a net worth of minus $105,000 to a millionaire with a few outstanding loans. Burry didn’t know it, but it was the first time Joel Greenblatt had done such a thing. ‘He was just obviously this brilliant guy, and there aren’t that many of them,’ says Greenblatt.

The set-up excerpt:

Thinking himself different, he didn’t find what happened to him when he collided with Wall Street nearly as bizarre as it was.

Late one night in November 1996, while on a cardiology rotation at Saint Thomas Hospital, in Nashville, Tennessee, he logged on to a hospital computer and went to a message board called techstocks.com. There he created a thread called “value investing.” Having read everything there was to read about investing, he decided to learn a bit more about “investing in the real world.” A mania for Internet stocks gripped the market. A site for the Silicon Valley investor, circa 1996, was not a natural home for a sober-minded value investor. Still, many came, all with opinions. A few people grumbled about the very idea of a doctor having anything useful to say about investments, but over time he came to dominate the discussion. Dr. Mike Burry—as he always signed himself—sensed that other people on the thread were taking his advice and making money with it.

Once he figured out he had nothing more to learn from the crowd on his thread, he quit it to create what later would be called a blog but at the time was just a weird form of communication. He was working 16-hour shifts at the hospital, confining his blogging mainly to the hours between midnight and three in the morning. On his blog he posted his stock-market trades and his arguments for making the trades. People found him. As a money manager at a big Philadelphia value fund said, “The first thing I wondered was: When is he doing this? The guy was a medical intern. I only saw the nonmedical part of his day, and it was simply awesome. He’s showing people his trades. And people are following it in real time. He’s doing value investing—in the middle of the dot-com bubble. He’s buying value stocks, which is what we’re doing. But we’re losing money. We’re losing clients. All of a sudden he goes on this tear. He’s up 50 percent. It’s uncanny. He’s uncanny. And we’re not the only ones watching it.”

Mike Burry couldn’t see exactly who was following his financial moves, but he could tell which domains they came from. In the beginning his readers came from EarthLink and AOL. Just random individuals. Pretty soon, however, they weren’t. People were coming to his site from mutual funds like Fidelity and big Wall Street investment banks like Morgan Stanley. One day he lit into Vanguard’s index funds and almost instantly received a cease-and-desist letter from Vanguard’s attorneys. Burry suspected that serious investors might even be acting on his blog posts, but he had no clear idea who they might be. “The market found him,” says the Philadelphia mutual-fund manager. “He was recognizing patterns no one else was seeing.”

…He’d moved back to San Jose, buried his father, remarried, and been misdiagnosed as bipolar when he shut down his Web site and announced he was quitting neurology to become a money manager. The chairman of the Stanford department of neurology thought he’d lost his mind and told him to take a year to think it over, but he’d already thought it over. “I found it fascinating and seemingly true,” he said, “that if I could run a portfolio well, then I could achieve success in life, and that it wouldn’t matter what kind of person I was perceived to be, even though I felt I was a good person deep down.” His $40,000 in assets against $145,000 in student loans posed the question of exactly what portfolio he would run. His father had died after another misdiagnosis: a doctor had failed to spot the cancer on an X-ray, and the family had received a small settlement. The father disapproved of the stock market, but the payout from his death funded his son into it. His mother was able to kick in $20,000 from her settlement, his three brothers kicked in $10,000 each of theirs. With that, Dr. Michael Burry opened Scion Capital. (As a teen he’d loved the book The Scions of Shannara.) He created a grandiose memo to lure people not related to him by blood. “The minimum net worth for investors should be $15 million,” it said, which was interesting, as it excluded not only himself but basically everyone he’d ever known.

As he scrambled to find office space, buy furniture, and open a brokerage account, he received a pair of surprising phone calls. The first came from a big investment fund in New York City, Gotham Capital. Gotham was founded by a value-investment guru named Joel Greenblatt. Burry had read Greenblatt’s book You Can Be a Stock Market Genius. (“I hated the title but liked the book.”) Greenblatt’s people told him that they had been making money off his ideas for some time and wanted to continue to do so—might Mike Burry consider allowing Gotham to invest in his fund? “Joel Greenblatt himself called,” said Burry, “and said, ‘I’ve been waiting for you to leave medicine.’”

According to Dr. Robert Cross, a professor of management at the University of Virginia, the high performers in an organization focus on building high-quality social networks rather than large ones.

From a 2006 paper (.pdf) co-authored by Rob Cross:

Most high performers succeed by developing targeted networks that extend their abilities. Rather than simply adding more and more people to their Rolodex, rising stars need…to know how to increase and decrease connectivity in ways that enhance productivity and performance.

…high performers in our research were selective in initiating relationships that extended their abilities. When they reached out to others — including to people they didn’t know — they did so with a clear and well-articulated reason for connecting.

…perhaps most important, our high performers were avid learners.

Their confident faces smile out from billboards across the city. Their promotional grins are plastered across double-decker buses, subway light boxes, even on TV.

These are Hong Kong’s “star tutors,” accorded near-celebrity status for their ability to make learning fun and help students pass exams in everything from English to chemistry.

Tutoring is common in Asia, where intense emphasis on grades and exams means parents are willing to shell out. More than half of Hong Kong’s youths get assistance outside school, a recent survey found.

The industry here is especially competitive and commercialized as tutors mimic the city’s showbiz industry to attract students and grab a share of the $460 million market.

“Those images of fame and stardom have been sustained and re-invented in different forms, resulting in tutors now packaging themselves as the superstars of the education sector in order to appeal to students,” says Gerald Postliglione, a professor at the University of Hong Kong.

Star tutors spare no costs on publicity. Even tutors who belong to one of the four major chains here must self-promote. But successful tutors can command hundreds of students.

Those at the very top see their lives splashed across the pages of the city’s gossip magazines, revealing how many luxury cars they drive or properties they own. Some reports put their salaries as high as $1.5 million a year. One English tutor, Richard Eng, is famous for his love of Ferraris.