Financail Crisis

A colleague who is doing research about the financial crisis asked me some questions about the crisis, since he read about my article that published on "Contemporary China Pictorial".

I thought it might be interesting to post some of the questions & answers here to share our thoughts. : )

What were the major factors that led to the financial crisis?  

The financial supervision system and the deficit spending consumption model should pay the major responsibility to the global economic crisis. However, I believe both of them are just superficial reasons, since Greenspan, the former chairman of the Federal Reserve has claimed that the government supervision is not an effective way to control the whole credit system, since it is always slower than the real market. The financial crisis has happened several times during the past decade, there must be some deeper reasons that we have not found yet, or reasons that we cannot do anything about it, such as the imbalanced distribution of the capital interest.

Who is responsible - greedy CEO's, Congress, credit rating agencies, Fannie Mae and Freddie Mac, individual borrowers, etc.?  

In my opinion, none of those should be fully responsible for the financial crisis. If I have to choose one, congress should take more responsibility than others. The huge economic bubble was there before the financial crisis happened, ever since the broken of network technology bubble in 2000 and the 911 terrorist attacks in 2001, the Bush government was forced to change the economic policy to the expansionist policy. The new policy led to a huge budget deficit, the US government had to issue a large amount of national debt which caused the weakness of the US dollar. This laid the basis of the 2008 financial crisis. 

To what degree do you believe the financial crisis was brought on by greed versus mistakes of well-intentioned individuals?

I believed that greed assumption way more than the opinion of “ mistakes of well-intentioned individuals”. As we all know, capital and all financial workers are tend to seek the maximum of the profit. It is hard for me to believe that the CEOs did not realize the high risk of the housing mortgage and subordinated debt obligation, in my opinion, they just choose to ignore the risks since the possible benefits are too attractive to resist. The so called “mistakes of well-intentioned individuals” is just a better expression instead of their eager to profit.