The United States has always been economically connected to its trading partners. But even some experts are amazed at how the housing blowup has spread across the Atlantic and beyond.
"When the U.S. economy suffers, Europe has historically suffered," says Jon Faust, a former international economist at the Federal Reserve who teaches at the Johns Hopkins University. Nevertheless, he said, "Am I surprised to see it as big as it is in Europe? Yes."
As foreign mutual funds follow U.S. stocks into the drink and the euro starts mimicking the dollar's earlier dive, it seems that the international economic gears are intertwined as never before. But the housing bubble, it turns out, was a worldwide affair from its beginning.
Hundreds of billions of dollars in U.S. mortgages were financed by China and oil producers such as Saudi Arabia looking for places to invest. Much of that money, of course, came from U.S. consumers buying overseas products.
And the housing bubble wasn't confined to the United States. Housing prices tripled in Ireland and rose 150 percent in Britain while going up only 70 percent in the United States, said David Wyss, chief economist at Standard & Poor's.
"Most of these problems were global," Wyss said. "Except for Germany and Japan, everybody had a housing bubble" among developed nations. "Home prices are correcting everywhere, and that's causing a problem for mortgage markets everywhere."
The American brand of mortgage, however, has proven especially poisonous to the world. Events have trashed the theory, popular six months ago, that foreign nations could keep growing quickly even as the United States brushed recession.
China's exposure to American mortgages was a primary reason Washington rescued mortgage giants Fannie Mae and Freddie Mac, analysts said.
A few weeks ago, German Finance Minister Peer Steinbrueck said that the mortgage meltdown was "an American problem" and suggested German banks wouldn't need a lifeline.
Now banks across Europe are getting government aid, and Germany's Hypo Real Estate had to get bailed out twice.
The evaporation of trust between banks has also spread abroad. "It's just one big crisis of confidence," said Jay Bryson, global economist for Wachovia. "As credit started to seize up, banks became less willing to lend to some banks abroad. Now banks are really reluctant to lend to each other, and it just shows you the interconnectedness of the global banking system."
