bsetser: thanks for reading, and I apologize for my tone in commenting - I've not really expected anyone to read this but myself and possibly family, and so I will strive in the future to be less caustic. Many thanks, also, for not only reading but commenting. Not many are willing to both read and discuss.
If we blame China for freeing up money for Americans to then go and buy mortgages and invest in Ponze Schemes (as they were told to by those in positions of influence and authority), then we have to blame gun makers for all the people killed by their products.
The interest rates were kept artificially low because those who could have adjusted the rates (Greenspan, et al.) chose not to raise them. Full stop.
Why did they decide to maintain these interest rates?
Because America seems to have a terminal lack of vision at its executive levels, and I am afraid it will continue to be a myopic nation for years to come.
Because they are invested in the United States playing the same kind of brinkmanship game learned during the Cold War's Arms Race* but now played openly in the economy over the past 15 years. If America goes down, everyone goes down.
We cannot find fault with China for investing in the U.S. during this time because the U.S. has been very keen to bring China closer to the United States - the U.S. wants China invested in America.
Having China invest in the United States has been a great first step in the reciprocity that is needed between the two if the world as we know it is to continue in the way we know it. What America should be focusing on with these investments made by China are not finance technologies like these toxic loans, but green technologies.
China simply cannot maintain its development at this rate, there just aren't enough natural resources in the world for the U.S. to consume as it does and have China develop at this rate. What the U.S. should have been doing with those investment dollars that the Chinese "freed up" was (and is) to invest in technologies that would reduce the resource limitations placed on China. Then, the U.S. would be manufacturing real goods, meaning China could continue to be manufacturer to the world, and in so doing we create a more sustainable consumption pattern.
Instead, funding for the sciences (infrastructure innovation for the 21st century) by the Federal government over the past 8 years has been drastically cut, and the American economy has been running on the nutritional equivalent of protein bars.
Now the economy's got diabetes: it's not fatal if managed properly.
*I would argue (and I suppose now I will write a post here) that the Cold War was simply an economic war and what we see today is the logical outcome of that same war game.