Bill Gross has a BA in psychology and also played blackjack professionally. Of course he went on to get his MBA and charter. Point being is that diversity helps bring a new perspective on things. We certainly needed it in the years leading up to the credit crisis. BTW, I’v been on a Bloomberg station nearly every day for the past 5 years and some of those journalists are idiots too.
If you worked in the industry during the credit crisis, you’ve likely seen this and it’s probably been all over this board too. Still good for a laugh though.
Are you familiar with Soros and his reflexivity theory? Not sure how popular his books are, I was just told to read them by someone I interviewed with once. I find his thoughts on the credit bubbles very interesting
Okay, some of my earlier post was for laughs But seriously…
All this study proves in Correlation; I don’t see how you can draw a causal relationship based on the information I gleaned from the 170+ page doctoral thesis by Heleen Mees. Someone please tell me how this BA History genius or Heleen Mees herself, for that matter, is drawing a causal relationship? Unlike what the BA History genius suggests, there is nothing new, earth-shattering or ground-breaking in this “study”.
A thoughtful analysis of this study would conclude something like “the growth in China’s Current Account Balance and savings rates coincided with and was highly correlated to the over-leveraging of American households”.
@Black Swan; Correct, If she had studied an analytical major, maybe she would have been more critical and thoughtful in her analysis. You’re not going to find this kind of lazy reporting over at Bloomberg(I get a 50 cents for every click).
You can suggest a causative relationship in academic papers. That’s why there is always a “thesis” - “a proposition stated or put forward for consideration”. In fact, a good paper about this topic should suggest some sort of causative relationship. Otherwise, the paper would be rather trivial.
There isn’t a link to Mees’ paper in the CNBC article, so I’m not sure what the paper actually said. However, I doubt she is stupid enough to right something like “China caused the credit crisis”. More likely, it is something like “China savings rate contributed to the credit crisis”, which it probably did. It is likely that CNBC just threw this news story out there with minimal editing, which explains its poor quality and dubious argument.
The article was definitely poorly written. I just posted it because I thought it would start an interesting debate. In the article, you’ll notice that the title of the research report wasn’t even mentioned. The reason why? China isn’t at the heart of the report which is actually titled, “U.S. Monetary Policy and the Interest Conundrum”. The abstract doesn’t even mention China. Ms. Mees actually asserts that China and oil exporting countries were the beneficiaries of the US’s over consumption. And Zesty, I think you’re full of it. You definitely didn’t glean over the paper. It’s only 58 pages long.
@Spunboy, the exact title of her thesis was “Changing Fortunes – How China’s Boom Caused the Financial Crisis” and it’s actually over 170 pages. She just condensed it into the study you posted. Full link below. Obviously, I didn’t read a 170 page thesis at work; I don’t work in IT and have loads of free time on my hands(again, another joke).
Geez, this article made it to NYSSA’s morning newsbrief email…
“Overzealous saving.”. By a country where if you don’t have cash when you arrive at the hospital, you’ll die on the floor. Seems to me that the Chinese have good reasons to save.
It’s like the jerks of the world blaming nice people for their douche-ness (“If the other people weren’t so courteous, we wouldn’t look so bad - so its their fault, those a-holes. There’s nothing wrong with us”).
@Zesty, I concede to you. You are not full of it. The original paper is over 170 pages and is titled “Changing Fortunes – How China’s Boom Caused the Financial Crisis.” Also, I do not work in IT and every damn minute I’m wasting time on this board means I’ll have to stay in my office later to get my work done. The opportunity cost of trying to get a free T-shirt is pretty high for me.
I also “gleaned” over the paper and think that Ms. Mees made a rather uncompelling argument to her thesis which is also the title of her paper. She makes some compelling arguments showing how China’s growth and savings were a part of a much larger puzzle but never makes a solid case on how China was the root cause of the financial crisis. To make such a blanket statement seems rather presumptuous.
She spends a considerable portion in 1 of 6 chapters arguing against Bernake in his assertion that exotic mortgages fueled the housing boom & bust. She states that exotic mortgages were only 5% of mortgage originations between 2000-2006 and that this would not explain the housing boom. According to Ms Mees, low long term interest rates were the main drivers. Rates were definitely a factor but she failed to bring up the doubling of subprime mortgages and tripling of ALT-A mortgages in the same period. And this being driven by the wizardry of Wall Street. I guess you could also blame China for providing the demand for bonds in this time, which she does. However, she fails to discuss so many other factors including the lack of regulation that allowed banks to become leveraged 30-40 to 1, the explosion of derivative products based on subprime abs where the notional value probably eclipsed the housing market and American culture that fueled the overconsumption. Instead, a main part of her conclusion for the chapter is, “…China and oil-exporting nations reaped most of the fruits of U.S. spending. These countries invested a major part of the proceeds in fixed income assets, resulting in – what Alan Greenspan dubbed – the interest conundrum.” Pretty weak argument for her thesis IMO. I think she threw the title on the paper because she knew it would get a response. And she was right.
I suspect the original thesis did not really blame the financial crisis on China, and probably simply argued that if China hadn’t been saving as much, the US wouldn’t have been able to dig a hole quite so deep for itself. I’m not sure that’s really true in any way that matters, given deregulation, leverage, and other topics that the previous poster brought up, but it is a respectable academic question that it makes sense to investigate.
More likely, the “China’s savings helped facilitate” argument got turned around by sloppy journalim or desire for sensationalism into “China is the reason why we had the financial crisis.”
