Could it be that the biggest problem is in Emerging Markets?
Latin America and Eastern Europe seem ready to melt down. Commodity prices are falling and their currencies are under a lot of pressure. It's the same old story from 1982, tons of borrowing in other currencies (Euro, $, even some in the Yen). Paul Krugman says beware the "mother of all currency crises" (and he should know because, as he just happens to mention, he "invented" their study), Dani Rodrik is calling for massive rich country and multilateral institutional lending to emerging economies. Tyler links to an article describing the grim situation in Eastern Europe and the high amount of exposure to it that European banks face.
Argentina is heading for another sovereign default. Brazil's currency and equity markets are falling and precarious. Chile and Mexico seem stronger but quite vulnerable.
Here's what the Telegraph reports on the exposure of European banks:
"The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect.
They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles."