Bizarrely, even though subprime in the US was the trigger that caused the now worldwide financial crisis, we will probably suffer the least because, impossible as it sounds, our banks weren’t as insane as those elsewhere.
Sure, our banks are levered, as are households, but bank assets, as a percentage of GDP are “relatively” tame. We’re no Iceland, and we’re no the UK. Everyone will have to run the presses to avoid a banking collapse, but the US may have to run it less than others.
Our banks aren’t as bad off as those in Western Europe, where they got psychotically over-leveraged and engaged in lunacy like selling mortgages and auto loans payable in the currency of another country.
Most of the Eastern European debt is held by Western European banks. It also turned out that some of the biggest lenders to Eastern Europe were Austrian and Italian banks — for example, loans by Austrian banks to Eastern European countries are almost equivalent to 70 percent of Austria’s G.D.P. Now, Italy and Austria can’t afford to bail out even their own banks.