Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Friday, August 31, 2012

China—Not Wall Street—Caused 2008 Crisis: Study

Thought the global financial crisis in 2008 was caused by subprime bonds, collateralized debt obligations (CDOs) and other Wall Street engineering? Think again.

According to a new study, China, not Wall Street bankers, was responsible for the global crisis and the ensuing recession.

The study from the Erasmus Research Institute of Management said the saving frenzy of the Chinese created the cheap money, which fueled the U.S. housing bubble and its collapse.

Heleen Mees, writer of the study and adjunct associate professor at the NYU Wagner Graduate School of Public Service, said that exotic mortgage products could hardly have been the cause of the U.S. housing market bubble and its ultimate collapse.

According to the study, mortgages with those special features — like mortgage-backed securities (learn more) and CDOs (learn more) — accounted for less than five percent of the total number of new mortgages from 2000 to 2006.

Mees, who also is the author of three books and contributor for Foreign Policy magazine, says it was the “loose” monetary policy of the U.S. Federal Reserve (learn more) at the beginning of the decade which sparked a refinancing boom in the U.S. in 2003 and 2004 and a growth in personal spending. This U.S. spending binge fueled economic growth in China and in turn boosted total savings in that country.

The study, which compared financial market responses to U.S., Chinese, and German quarterly gross domestic product (learn more) from 2006 through 2009, shows that the Chinese have been saving more than half of their GDP during that time. Those savings were heavily skewed towards fixed-income assets, like government bonds, and depressed interest rates worldwide from 2004 on.

Falling interest rates sparked a boom in the U.S. housing market due to the availability of cheap money.

The study also argued that Ben Bernanke, chairman of the Fed, set the world up for the Great Recession by providing the “intellectual backing for the aggressive rate cuts in the early 2000s.”

With so many books out on the financial crisis, Mees recommends people read “Economic Development with Unlimited Supplies of Labor” by Arthur Lewis and she says people should avoid one of the blockbusters on the crisis, “The Big Short by Michael Lewis.”

Original Article
Source: cnbc.com
Author: Liza Jansen

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