| Being one of the U.S.innovative financial products,the subprime loan is the mortgage loan granted to the low-income groups.Since 2000,as the U.S.took expansionary monetary and fiscal policies,facilitated by the securitization of subprime mortgages,subprime loans began to increase dramatically and eventually led to the over-heated real estate market.As New Century Corporation,the second largest U.S.mortgage lending company went bankrupt in April 2007 due to being unable to repurchase the failed mortgage loans,the U.S.financial crisis erupted. Until October 2008,three of top 5 largest investment banks of the U.S.were no longer in existence and the remaining two,Morgan Stanley and Goldman Sachs have transformed into bank-holding corporations.The U.S.government and the Federal Reserve System have taken large scale bailout activities and the central banks of the U.S.,the European Union,Japan and other countries have united to decrease the benchmark interest rates several times,aiming to resolve the global deflation.At present,the U.S.,the European Union and Japan are in deep recessions and the emerging economies' financial stability and macro-economic situation are facing unprecedented challenges.Moreover,the global economic condition has been worsening and the economic prospect is of great uncertainty.The subprime crisis has been no doubt the most serious crisis following the Great Depression and will last for the longest duration and bring the biggest impact on the world economy.China cannot perform well alone under the background of financial globalization.China's financial industry has suffered some losses,and the economic recessions of developed countries have brought large impact on China's exporting industry and negative impact on China's economic growth and employment.The worst thing is that almost 1 trillion dollars of China's foreign exchange reserves are invested in the U.S.Treasury bills which carry great exchange rate risk as the U.S. budget deficit is increasing.Some people accused that Eastern Asian savings glut flew into the U.S.and then caused the financial crisis.Some people even claim that China's trade surplus is the main cause for the crisis,China should open its capital market and domestic market for goods and services and RMB should appreciate to a greater extent.Undoubtedly,China's external environment is worsened under this condition.How to withstand the pressure and take the opportunity of the financial crisis to realize the great rejuvenation of the Chinese nation is of great urgency.The paper analyzes the fundamental causes for the U.S.financial crisis under this scenario,aiming to resolving the following 4 problems.First,it researches on the fundamental causes of the U.S.financial crisis based on Marxism currency crisis theory;second,it criticizes the false statement that China's savings glut has caused the U.S.financial crisis;third,it criticizes the false statement of Monetarists that financial market is rational;fourth,it discusses the reasons why other emerging countries have been severely affected by the U.S.financial crisis while China could lower the losses occurred in the crisis to the minimum level.The main body of the paper consists of 7 chapters(chapter 2-chapter 8). Chapter 2 analyzes how the U.S.subprime crisis has caused the U.S.financial crisis. First it defines the financial crisis from the angle of Marxism currency crisis theory; second,it introduces the definition,features,classification and risks of the subprime loan;third,it researches on how subprime loans transformed into subprime securities through securitization,including the definition,features,risks,participants and products of securitization of the subprime loan;finally,it researches on the eruption of the U.S.subprime crisis and its evolution.Chapter 3 analyzes the understanding and comments of some western economists and policy makers on the U.S.financial crisis,including the viewpoints of Ben Shalom Bernanke,George Soros,and Paul R.Krugman.In 2005,Ben Shalom Bernanke pointed out that the continuous U.S.current account deficits were not the results of the U.S.residents' over-spending,but the results of Eastern Asian countries savings glut flowing into the U.S.George Soros thinks the current U.S financial crisis is different from the previous crises by nature.The previous crises are one phase of business cycles,while the current financial crisis was originated within the financial system.The current financial crisis was not caused by external shocks and it was the result of the past 30 years' dominance of free market theories.Paul R. Krugman is a neo-Keynesian,and he proposes fiscal policy is the solution to the financial crisis and U.S.economy will eventually go out of the recession.Some economists expect to explain the causes of the current U.S.financial crisis based on the financial instability hypothesis of Hyman P Minsky.According to the financial instability hypothesis,financing can be classified into three types:hedge financing, speculative financing and Ponze financing.When hedge financing dominates the market,the economy can reach equilibrium;when speculative financing and Ponze financing dominate the market,the economy will not be able to reach equilibrium and financial crisis will eventually erupt.Chapter 4 consists of 4 parts and analyzes the direct causes of the U.S.financial crisis from Marxism angle,including the unsustainable economic growth pattern of the U.S.,the over expanding of credit,the slump of present value of fictitious capital and the imperfection of financial supervision and regulation.First,as to the statement by Bernanke that the U.S.financial crisis was caused by the inflows of Eastern Asian savings glut,the paper researches on the U.S.investment and savings rate,current account deficits,the sources and structure of net capital inflow,finally reaches a conclusion that the fact that the U.S.national savings are far less than domestic investment has led to a large amount of foreign capital flowing into the U.S. and most of this foreign capital inflows were from industrialized countries,so claiming that China's savings glut has caused the U.S.financial crisis is of no foundation.Second,the paper points out the over expansion of credit has caused over-heated speculation and criticizes the wrong statement that market is rational and there is no unstable speculation,then points out that credit expanding results in the accumulation of capital under few people's control,and these few people tend to be involved in speculation,gambling and fraud,and even though individuals are rational,the market as a whole is faced with composition fallacy,which means the over-heated speculation might be the mixed manifestation of individual rationality and market irrationality as a whole.Third,it points out the rapid expansion of the U.S.fictitious capital worsened the financial instability.When the U.S.economy was in the periods of expansion,speculative financing and Ponze financing were increasing,while as the economy began to contract,the increasing interest rate and decreasing housing price started up the debts-deflation mechanisms,which results in the increasing subprime default rate.More and more mortgage lenders went bankrupt due to being unable to repay the failed loan,investors began to lose confidence,the credit of financial institutions dried up,the present value of fictitious capital such as mortgage backed securities slumped and financial crisis erupted in the end.Fourth,it analyzes the imperfection of the U.S.financial supervision and regulation,including the insufficiency of government supervision over non-bank financial institutions,the shadow financial institutions,financial intermediaries, financial innovations and the inadequate protection for consumer rights.From the realistic angle,it testifies the statement of monetarists that markets are always efficient and government interference in the market operations are always not desirable is wrong and the paper points out markets are efficient in most cases,but there are some exceptions when markets failures prevail,especially when financial market where there are technological barriers and incomplete information is involved,so the government should carry out effective regulations and supervision over financial institutions,financial activities and financial innovations.Chapter 5 consists of three parts and discusses the fundamental causes of the U.S.financial crisis based on Marxism currency crisis theory.The fundamental causes of the crisis lie in intensification of inherent contradictions of money,capital and human nature.First,it points out one of the fundamental causes of the U.S. financial crisis lies in the intensification of inherent contradiction of money of account and real money.The expansion of credit leads to speculation,gambling,and fraud which made people no longer trust each other,no longer believe in money of account whose value is based on commercial credit and bank credit,and no longer accept deferred payment and checks.In this situation,commercial banks are contracting credit with the fear of counterpart risk,markets fall into liquidity trap, the demand for money increases dramatically and monetary policy is not effective any more.Second,the paper puts forward that the greediness of rational people is the engine for society progress,while altruistic tendency of rational people arises from exchange tendency.Moreover,unification of self-interest driven tendency and altruistic tendency promotes the generation of money and the prosperity of commerce,while the opposition of self-interest driven tendency and altruistic tendency results in financial crisis in the financial field.Third,the paper argues that one of fundamental causes lies in the intensification of its inherent contradiction when money acts as capital.The Inherent contradiction of capital is the contradiction of unlimited desire of capital for supernormal profits and its capacity of gaining supemormal profits.During the processof pursuing supernormal profits,capital has to face the facts that the average profit margin has been declining due to the excessive accumulation of capital and the relative purchasing power of poor common people has been decreasing.To prevent average profit margin from declining,capital has to seek new sources for Profit,which gave birth to the U.S. subprime loans,while the subprime financial crisis is the manifestation of intensification of the inherent contradiction of capital.Chapter 6 discusses the cyclical nature of the U.S.financial crisis based on the Marxism currency crisis theory and demonstrates three general laws:the profit margin is declining as more and more fixed inputs are used in the phase of prosperity, the extent to which each industry with different fixed inputs is affected by the crisis is different,and interest rate,price of fictitious capital and profit margin of each industry change periodically,then the paper comes to a conclusion that the U.S. financial crisis is cyclical and with the renovation of fixed capital and revival of consumer confidence,the U.S.economy and world economy will recover from the crisis.However,the time duration of recovering process will be different for different industries due to different extents to which each industry was affected by the crisis.Chapter 7 discusses the reasons for the propagation of the financial crisis to emerging markets.First,theories of Marxism currency crisis,capital flows and international propagation are discussed;second,paths of contagion and financial risks emerging markets faced are analyzed;then conclusions of this chapter are reached:the reason for the strong impact of the U.S.financial crisis on emerging markets is the lack of control over their capital account,which made domestic financial market dominated by foreign financial capital.Marxism currency crisis theory consists of two parts:first,in the phase of declining period of business cycle, capital outflow accelerates and triggers financial crisis;second,the international expansion of credit intensifies the inherent contradiction of money and capital globally.The paths of the U.S.financial crisis to emerging markets consist of three channels:the first is through international capital flows,the second is through international trade and the third is through confidence.The risks that emerging markets faced are the over-high external debt ratio,the flight of hot money, over-high private loan rate and other financial risks.Chapter 8 discusses why China will not be hit by the financial crisis.The world market theory of Marxism claims that the world economy is a united whole one and each country is one part of this whole one.China's economy and the U.S.economy are dependent upon each other and China cannot perform well alone facing the U.S. financial crisis.At present,most kinds of American securities owned by China have been devalued,and China's assets abroad in terms of U.S.dollars have also been devalued due to the depreciation of the U.S.dollar.The U.S recession led to a large scale decrease in China's exports to the U.S.which had a big negative effect on China's economic growth and employment.Although China is faced with so many risks,compared with other emerging markets,the negative impact of the U.S. financial crisis on China is less severe and still under China's management,which means China will not be hit by the crisis because of the following reasons:first, china's continuous and large BOP surpluses have been stabilizing the exchange value of RMB;second,the increasing and sufficient foreign exchanges of China provides itself with adequate strength to resist all kinds of external shocks;third, Chinese Party,central government and central bank are trusted by Chinese people, bankers,entrepreneurs and all Chinese people are confident about China's economic prospect.Viewed from a positive perspective,the U.S.financial crisis provided China with an opportunity and China can take this opportunity to enhance its international status,strengthen its right to have a say,improve the value of RMB and promote the complete convertibility of RMB.The U.S.financial crisis assured that China's economic development road is right and that insisting on the credit theory of Marxism and government involvement in economic management is able to stand the proof and test of history.
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