One thing we should have learned in the financial crisis was how interconnected the worldis and despite the pain and strain of the last few years, there has been little, if any, progress in reducing systemic risk. When the regulators developed the Basel rules they used historicaldata which suggested that country defaults were rare and largely uncorrelated, and so the result was preferential capital rules.
But those factors also drove the preferential capital rules for mortgages, and we knowhow that turned out. What we are witnessing is a highly correlated deterioration in developed economies at a time when there is untenable debt and an incredibly tangled, and still largely unregulated,derivative machination tying the world together.Through this lens, Japan is Ireland is Greece is Portugal and eventually, it will be the United States as well.