David Frum: Wall Street Didn’t Cause Financial Crisis- It Was China!

I had to laugh when I read this editorial by neo-con David Frum on CNN today.

To his credit, he acknowledges that Americans did not take out mortgages to buy homes they knew they couldn’t afford or that they borrowed too much because they wanted big screen TVs in every room.  He gets it right when he says that Americans were borrowing because incomes have not been keeping pace with the cost of living, but from there, he shifts into “alternate universe land.”

He says, and I kid you not, that China’s growth caused the financial collapse because it was buying up US debt like crazy in order to keep its factories fully staffed with workers, and of course, the largest source of American debt was U.S. mortgages. Wall Street, seeing the Chinese demand for U.S debt created the vehicles to produce more of it: mortgage backed securities. They were just the middle men.  Ergo,  it wasn’t Wall Street that increased the demand to the point that mortgage brokers were peddling risky loans doomed to fail, it was the Chinese hunger for American debt!

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