China — Not Wall Street — Caused 2008 Crisis: Study

I’m not a big fan of Chinese policies but to blame them for the financial crisis is a stretch.

Work for a few dollars a day + consume less + save money = financial crisis

I don’t think so. More like,

consume too much + max your credit cards + buy a house you can’t afford + refinance your house to pay credit cards = financial crisis

this article is on the dot IMO. I don’t agree with their goal of blaming china the way they are, but yes, a big part of it was driven by foreign buying of US debt IMO.

And no, not because Greenspan kept rates too low. That’s just stupid to blame it on him.

palantir, its not on the dot…they didn’t cause it…they were part of the system that was headed in a certain trajectory…

I don’t agree with their “blaming” of china, nobody is particularly at fault here as credit bubbles are a normal part of the economy. But the “Foreign Investment” side of the Balance of Payments has been totally overlooked in the media and among the investment community. US can run trade deficits because it is balanced by foreign ownership of US assets.

Among a certain political group, the blame has centered around federal reserve keeping “rates too low” prior to the crisis…

Classic straw man arguement…

It’s a logical theory. It doesn’t mean that china is responsible though, just that it had an effect on creating a bubble which ultimately popped.

I’d have to agree with Plantir’s point. The chinese US debt purchases, shift in manufacturing overseas and high Asian savings rates were def a contributing factor. I also take offense when people blame Greenspan despite overwhelming evidence that the long term borrowing rate and the Fed rate had become decoupled due to overseas pressures. I also agree with Plantir, in that it is wrong to “blame” China. As Frankie and Chicken Tikka said, the system as a whole was on that trajectory. One major component was the Chinese part of the picture, another was definitely the over consumption on the side of the US as well as high personal debt levels and of course every single component of the real estate market from the buyers through the originators to the securitizers to the final investors.

It’s unclear to me if the author is actually “blaming” China, or if she is being miscited by the CNBC article.

^What I thought too after looking at it

low interest rates + government sponsored enterprises + home ownership policies created the housing bubble which led to the subprime defaults.

Everyone wants a tidy narrative for the crisis. The reality is that it was an incredibly complicated set of intertwined factors, all of which were interdependent upon one another to cause the crisis. If you take out any o fhe factors – consumer greed, China, the ratings agencies, changed government policies, foreign purchasers of debt, etc., etc. then the crisis would not have happened. Every piece needed to line up the way it did.

Personally, I blame the government more than anyone else (big surprise there I’m sure). The government repealed critical policies that encouraged the underpinings of the crisis to build and was generally asleep at the wheel. It’s false to completely blame Wall Street because financiers were just doing what they do best (shuffle money around without adding any value) within the context of the rules set up by the government. Morally bankrupt? Sure. But not illegal in most cases.

If it was simply US govt policies…why did similar credit bubbles prop up throughout the world? Credit bubbles are a natural and normal part of longer term economic cycles, and in the case of a huge bubble like we’re seeing right now, government policies are just shoveling against the ocean.

Check your sources…CNBC has been wrong about everything and this is why…

This article is written by a kid who graduated in 2008 with a BA in History. She’s never worked in finance a day in her life and doesn’t have a finance degree or designation. She gets no respect from me!

Anyone who takes CNBC, this article or this writer seriously is an idiot in my book. Go to Bloomberg and find something to post, please(they actually have CFAs over at Bloomberg)!

You’re right, a history major could never accurately report on the findings of a Netherlands based management research program. You need a CFA to do that, what were we thinking.

Ignore the actual argument’s validity in favor of ad hominem pedegree judgements. Good call Zesty.

Moderately related. I’ve gotten the broad “What caused the Global Financial Crisis?” question a few times in interviews. Always found it pretty difficult to organize a succinct answer.

You need a Top 3 MBA and experience in ER or IB or PE to have an opinion on finance.

“What crisis? Things are just returning to normal.”

Zesty, you’re a goof.

OK, I didn’t read the article, but I assume the argument is that Chinese excess savings applied to US Treasury and other US Credit instruments allowed the US to continue expanding its public and private debts at what is argued to be artificially low interest rates, thus raising the value of risky assets into a bubble. As a description of the global system, this analysis is accurate.

Whether that means “it’s China’s fault” is entirely a different question. On the one hand, it sounds a bit like the Latin American crises of the 1980s being blamed on petrodollars being lent. Some Latin Americans cried out “they forced that money on us at such low rates, we couldn’t refuse,” which just sounds hollow. Now we are in the role of the Latin Americans, and the Chinese are in the role of US banks, and that argument doesn’t sound any more sensible now either.

But then how is that different from the idea of the guy who bought too much of a mortgage and is underwater and is claiming that the banks forced a mortgage on him. Well, I think the guy is partly responsible, but there were mortgage brokers that were busy trying to convince him to do deals that were clearly not in his interest. In that case, there was a high differential of financial knowledge, and so I think the banks and the mortgage brokers have more of a share of blame in that. Ultimately, the borrower needs to be realistic about how much they can borrow and repay; the lender needs to be realistic about the borrower’s ability to repay. But when there is a gross mismatch of financial knowledge between one party and the other, blame lies on the side of the one with greater financial knowledge.

With China and the US, I’m not sure there is a gross mismatch of financial knowledge taking place, so while I see China as part of a dynamic that caused the crisis, I don’t see them as deserving a disproportionate share of the blame.

A little off topic, but here’s a fun fact I just picked up from a guest post over at ZH:

It took 200 years for the US to accumulate its first trillion in debt and only 256 days to accumulate its last. That’s pretty scary.