Rarely does an event capture the world's attention as the American financial crisis has in the past few days. In Mexico, they're calling it the "American FOBAPROA," an echo of that country's infamous 1994 bailout fund. In Beijing, many are hoping it will chasten China's free-spending materialists. In France, President Sarkozy views it as a vindication of heavy-handed government policies. The crisis, which has caused the spectacular failure of storied banks like Lehman Bros. and Wachovia, and probably more to come, hasn't caused a global financial meltdown (yet). But its effects are being felt on minds and pocketbooks around the world. Here—from our correspondents in Britain, France, China, Germany, South Korea and Japan—are glimpses of the international reaction to the panic on Wall Street.
—Barrett Sheridan
Britain: Rooting for the rescue plan.
The British don't have time to gloat. They're too worried about their own pension funds and savings accounts. Last week, the historical Scottish bank HBOS failed and now another high-street stalwart, Bradford & Bingley, has gone under. While most people don't understand the first thing about the FTSE, let alone complex derivatives, there's a pervasive feeling of cold panic. "It's like bad weather," says Tom Norman, 41, "That's how I see it. We've got a hurricane coming towards us and there's nothing to be done but hunker in."
Bankers are taking the blame for the crisis. The Archbishop of York, the country's second senior prelate, has condemned traders who cashed in on falling prices as "bank robbers and asset strippers." The generic trader makes a good whipping boy: "It does make me angry that this situation has been created by greedy, irresponsible, feckless city boys," says Katherine Walker, 27, who works in publishing, "The financial world has been acting in a megalomaniacal fashion and deserves to be taken down a peg or five. This is a terrible situation for the average hard-working family. It happened to my family in the 90's during the last downturn and affected us deeply for years." In the Square Mile itself there's a similar antipathy toward suited traders: "That's what happens when you get greedy," says James Terrell, 29, a construction worker on a cigarette break just a stone's throw from the Bank of England, "What goes around comes around. It's not just the Americans—they're alright. Everyone thinks because they've got the most money they're to blame. But we're all to blame. We always follow them anyway—that's inevitable. It's going to effect us all."
Still, any schadenfreude toward the global banking community is only a distraction. "While I love to see bankers suffer, actually my son is one, so I'm pretty torn," says architect, Stephen Brown. "I know too well how disastrous these slumps can be. During the 1991 recession I was basically bankrupt—it all happens very quickly. So what's the use in finger-pointing? I don't want to see the Americans go down the pan. Everyone knows that we'll follow." The average Briton is staring at the eye of the storm. If anything, they're rooting for America—and Paulson's rescue plan—hoping for a quick fix before the crisis lands on their own doorstep.
—Sophie Grove, London
France: The bailout is 'profoundly revolting.'
French President Nicolas Sarkozy, in a speech before 4,000 supporters last week, seemed at once to stake his claim on I-told-you-so's about unbridled capitalism and to legitimize the sort of state intervention he's taken flak for in the past. "When the American taxpayer is getting ready to spend one thousand billion dollars to avoid generalized bankruptcy, it seems the legitimacy of public powers to intervene, in the functioning of the financial system, is no longer in question," he said. The irony of the free-market president George W. Bush proposing a massive intervention was not lost on business leaders. "Seeing big American banks saved by privatizations, one almost wants to scream, 'Marx, come back, they've gone crazy!'," wrote Arnaud Lagardère, general partner and CEO of the Lagardère Group, in the financial daily Les Echos. "We're seeing, in renewed form, the most debatable aspects of Anglo-Saxon capitalism called into question."
Unbridled speculation and collapse aren't entirely unknown in France. Rogue trader Jerome Kerviel cost the Société Generale five billion euros earlier this year. But the French are sympathetic to U.S. citizens who will ultimately pay for the bailout. "It's a scandal," says Lyne Khabbaz, 28, a public relations executive who came to France from Lebanon eight years ago. "One, because it's the small-time saver who pays, who loses his loans, his money, and then on top of that, it's up to the small-time depositor to bail them out. And then how is the state going to fill its coffers back up? Are they going to raise taxes? It puts too much of a load on the small-time saver who has strictly nothing to do with this, who's fighting day-to-day to meet his needs and his family's needs. So to me this solution is scandalous. I find it profoundly revolting." Nicolas Menant, 31, an auto industry project manager, thinks his government would have had the same impulse. "In the United States, the state doesn't tend to involve itself in the private sector. But this has gone beyond the private sector—it's more of a public sector issue."
The French, however, don't seem seriously worried about something similar happening to them. For one thing, it's too difficult to get a loan or a line of credit from French banks. And in his recent speech, Sarkozy promised that the state would step in if need be to protect personal savings. In response, the left-leaning daily Libération put Sarkozy on its cover, with the tongue-in-cheek headline: "Our Savior."
—Tracy McNicoll, Paris
China: 'We will make the same mistakes.'
China's delight at beating the United States in the Olympic medal tally finds no gleeful echoes when it comes to Wall Street's financial crisis. The Chinese are not crowing over the U.S. mortgage-induced meltdown; rather, they worry how it will affect them. "We don't want to see America go down because we depend on them," says Xu Zhaohui, a middle-school teacher.
So are China's banks at risk of contagion? China's banking sector is "one of the healthiest in the world," says Jing Ulrich, Chairman of China Equities at JP Morgan. Chinese banks are awash with liquidity, sitting on bank deposits from thrifty savers totaling $7 trillion. Banking analysts were not alarmed that China's two biggest retail banks had $280 million worth of exposure to bankrupt Lehman Brothers. Nor is there much sign of the domestic mortgage market triggering an identical, system-wide collapse. Although home ownership levels are as high as 80 percent in some cities—a sign of China's passion for property—many homebuyers pay cash. Ulrich says mortgage-holders seldom buy beyond their means, so a wave of defaults is unlikely, even in a slowing economy.
America's pain may even provide a useful lesson on the dangers of debt. Mortgages are new here, introduced just 10 years ago, and some worry that housing loans are eroding thrifty traditional habits. "Chinese people used to be unwilling to spend beyond their means," says college administrator Sun Huili. "People need to think about what's happening" in America, she warns. Thirty-six year old consultant Kelly Yu takes a more pessimistic view: "It's a good warning for the Chinese economy, but I believe China will make the exact same mistake in future". In her view, "Chinese are so crazy about wealth" that reckless speculation is inevitable.
China is suffering its own real-estate slump as a glutted luxury sector fails to find buyers. Ulrich predicts there'll be some busts, but thinks the medium-term impact could be healthy, finally pushing developers toward affordable housing for the masses. That may be so, but real-estate speculation has become a middle-class obsession. Xu owns three apartments, for instance. That means short-term instability is sure to make people nervous. Just following TV news on "unstable markets would really scare average people," says Yu, who advises companies on corporate social responsibility. Economists are upbeat about China's ability to ride out the U.S. financial crisis, but ordinary Chinese are not economists, and they're fearful.
—Mary Hennock
Germany: 'The crisis is far away.'
In Germany, politicians and the media commentariat are having a field day lashing out at American capitalism. But for ordinary Germans, the crisis seems like it's taking place on another planet. "America is a different world, where all kinds of people can get credit they shouldn't be getting," says Micky Gliese, a Berlin restaurant owner. "We Germans are different." Half the country rents, and many buy homes not on credit but with savings. Unlike in many other European countries, there's been no real-estate bubble to burst; prices only recently returned to early 1990s levels. There's no frothy consumer credit peddling industry—in fact, many people who got easy mortgages in America wouldn't even qualify for an ATM card. Most Germans don't even own stocks. "For me this crisis is very far away," Gliese says.
Still, many Germans are mad that some of their own state-owned banks invested so heavily in American debt and got away with billion-euro taxpayer bailouts. "The politicians fired a couple of scapegoats and for the rest of them it's business as usual," complains Marina Hesse, a legal secretary in Berlin. She also worries the crisis means that German banks will tighten credit again for small businesses and homeowners. "This will definitely hit us too," she says. Her family owns a house they're renting out and need a loan for a major renovation. They already had a hard time getting the last big loan and fear the banks will tighten credit again. Restaurant owner Gliese fears that the crisis will affect the German economy, too, and that next year his customers will start saving on restaurant bills.
—Stefan Theil, Berlin
Japan: Critical of 'U.S. style capitalism'
Then reigning sentiment in Japan is déjà vu. The failure of Lehman Brothers and the Treasury Department's historic bailout plans have echoes in Japan's troubled financial past. There is a lesson to be learned from Japan's response to financial crisis, Japanese experts say. "When a bubble bursts and the financial system gets destabilized, providing liquidity is not enough to overcome a crisis," Yutaka Yamaguchi, who served as deputy governor at the Bank of Japan during part of the financial crisis here, told one newspaper. "Unless financial institutions get recapitalized by raising funds in the markets or receiving public funds, the financial crisis will not end. That's the lesson [America] should learn from Japan's financial crisis." Yamaguchi says the U.S. financial model has effectively gone bankrupt. We are witnessing a "turning point," he adds—just as in the 1930s.
Others haven't been so polite. Columnist Kiyoshi Okonogi described the over-extended U.S. economy as "a bubble boosted by greed and leverage" and "a sort of casino betting on recklessness." Writing in a popular monthly magazine's latest issue, columnist Hideo Tamura wrote that "Wall Street had it coming…The nature of America's financial crisis is the failure of Wall Street's business model in and of itself."
Until recently, the U.S. financial crisis looked to Japanese people like a fire on a distant shore. Not anymore. The economy is slowing markedly and stock and property prices are falling. Business magazines have described the impact of the U.S. crisis on Japan as a "severe earthquake." The bankruptcy rate is rising, especially among real-estate developers, as U.S. investors pull out of the Japanese property market.
Many Japanese were already critical of "U.S.-style capitalism," which they saw led to excessive economic inequality. Such critical views will likely intensify and spread in Japan as the crisis deepens.
—Akiko Kashiwagi
South Korea: Mixed feelings.
South Koreans look at the U.S. financial meltdown with mixed feelings. On the one hand, they are deeply concerned by the crisis of the Wall Street that has been the model of their financial system for the past ten years. Ever since the 1997-98 Asian financial crisis that nearly destroyed the Korean financial system, Korea has vigorously reformed its corporate and financial sectors in a bid to follow the U.S. standard. Korea even tried to build its own Goldman Sachs and Morgan Stanley, believing investment banking is the future of its financial industry.
Korea also deregulated and opened up its economy actively during the past decade, a condition demanded by the International Monetary Fund in exchange for its $50 billion bailout package. Widely open to foreign investors and trade, the Korean economy is now highly vulnerable to external shocks, such as the current global financial trouble. Like other open economies, Korea has recently suffered from a series of financial woes, notably stock-price plunges and currency depreciation. "As a result of our reform and opening for the past ten years, our economy is more vulnerable to external shocks now than ten years ago," says economist Chang Jae Chul at Samsung Economic Research Institute.
Some Koreans, on the other hand, take some pleasure at the discomfort in the United States. Anti-globalization groups, which have been raising their voices against U.S.-led neoliberal capitalism for years, argue that Wall Street forced South Korea ten years ago to adopt its financial system, warts and all. They're using the crisis to mobilize public support for their opposition to the new Korean government's aggressive deregulation and free-trade policy. President Lee Myung Bak, who came to power in February, is currently pushing reforms, such as tax cuts, free trade agreements with major trading partners and privatization of state enterprises, as well as financial deregulation. "The U.S.-originated crisis means a bankruptcy verdict for President Lee's neoliberalism," says Park Seung Heup, spokesman for the opposition Democratic Labor Party. Park Young Sun, a lawmaker with the opposition Democratic Party, adds: "President Lee blindly follows and copies the neoliberal economic system that has become a history."
—B.J. Lee, Seoul