David Frum


Subprime Loans Were a Chinese Export

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I tried to summarize Edward Conard's argument in his new book, Unintended Consequences, in an earlier post. Let's devote this part to the most interesting things he has to say, before addressing in a third part the weaknesses in his case.

Conard never loses sight of America's position as part of the world economy, not an island unto itself.

He argues (winningly, in my opinion) that the housing boom of the 2000s was driven, not by lax Federal Reserve policy, but by the vast accumulation of dollar assets by China and other emerging-market exporters. Those exporters wanted someplace safe and liquid to stash their dollars, and Wall Street went to work with a will to manufacture triple-A bonds to meet that demand.

There's a lot to be said about Wall Street's behavior in this regard, little of it good. Wall Street's behavior, however, is not Conard's focus. He is interested in the hydraulics of supply and demand, and that demand originated primarily overseas.

Likewise, Conard tells the wage story as one driven by international events: more globalized markets (which opened U.S. labor to competition from cheaper workers in East Asia) and immigration (which brought 40 million of those workers into this country)

In neither case does Conard much worry whether anything could or should be done—the world is as it is.