So the financial crisis has definitively moved from being a Wall Street phenomenon featuring a certain amount of European schadenfreude to a global crisis in which European banks are just as involved as American ones. That it is a global crisis and not merely an American one means two things.

First, early on in this financial mess, the sense that it was “global” meant that the foolish, bad, overleveraged lending by American banks was really an American problem although the capital that fueled it came from abroad, mostly from Asia and especially China: cheap Chinese goods, as Sebastian Mallaby explained a few days ago in the Washington Post, brought much cash to China which was then recycled back to the rest of the world in the form of asset inflation, which the Fed chose to ignore. In that regard, the flows of capital were global but the bad lending basically American.

Second, however, within the last few weeks (and it was actually clear earlier for those willing to look at UK problems), it has become clear that the crisis is global in the sense that banks in Europe and elsewhere have also loaned on the same super (by historical standards) leveraged terms and bought derivatives with the same difficulties in valuation and so have, on some measures, even greater exposure than their American counterparts.

The problem for Europe, however, is compounded by the amalgamated nature of the political and financial system.

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