In an Interconnected World, American Homeowner Woes Can Be Felt From Beijing to Rio de Janeiro

FRANKFURT, Germany: Garment makers in China. Insurance salesmen in France. Factory workers in Brazil.

Different lives on different continents. But all of them, in this astonishingly interconnected world, are being swept up in a worldwide credit crunch that have raised fears of a financial meltdown.

Bad lending decisions to ordinary folks in places like Minnesota and New Jersey have been tearing through world economies like a tsunami, causing stock markets to plummet, threatening pensions, and affecting the prices of everything from oil to refrigerators.

At times like these, globalization can sound like a dirty word.

"We all feel threatened, problems on the stock exchange have consequences for the economy of America and of the world" said Gabriella Savarini, a 69-year-old shopkeeper in Rome. "America influences all, for good or for bad."

As more and more Americans fail to keep up with their home mortgage payments, worries are growing about the spinoff effects around the world. And there's a truly scary twist: nobody knows exactly how much has been sunk into a market that threw cheap money at low-income homeowners and is now grinding to a halt.

That's because much of the debt from mortgages has been packaged into securities sold to pension funds, banks and other investors who were hungry for high yields, so it is all but impossible to calculate how much has been invested.

The fallout could also further depress housing prices, leaving U.S. consumers feeling poorer and less likely to buy the merchandise imported from overseas.

Around the globe, small time investors are taking a beating.

"The world is so interlocked now, and that's worrying," said Yu Wade, a translator in Tokyo who said her telecommunications shares fell sharply in the recent market sell-off.

Already, there has been an unprecedented move by central banks worldwide to inject billions of dollars into banking systems to keep markets liquid.

"It's very, very similar on a lesser scale to what happened in 1998, when Russia defaulted on its debt and all of a sudden a farmer in Kansas was having trouble getting money," explained Kenneth Rogoff, a former director of research at the International Monetary Fund and now professor at Harvard University.

Global interdependency isn't exactly a recent phenomenon: The Wall Street stock market crash of 1929 and the Great Depression infected the entire world, and helped to create the conditions for the rise of fascism in Europe.

But the past two decades have seen a quantum leap in globalization — as outsourcing, crumbling trade barriers, and a revolution in financial markets have knit us all together in ways previously unthinkable.

America faced a crisis similar to the current mortgage fiasco when hundreds of Savings and Loan companies went belly-up in the 1980s, but back then the fallout did not spread dramatically to foreign shores.

Most predictions at the moment do not point to a calamity on the scale of the Great Depression. Economists believe global markets will ultimately find their footing as the banks, hedge funds, insurers and private equity funds adjust portfolios.

Still, many are worried about the short-term effects.

"Perhaps it's over-dramatized, but heck, right now investors do face a financial nightmare and don't really care to hear the words, 'in the long-run, it'll all be OK,'" said Andrew Wilkinson of Interactive Brokers in Greenwich, Connecticut.

From New York to Frankfurt to Tokyo and nearly everywhere in between, markets were jolted in the past week by fears that liquidity was drying up because some banks were unable to track how much money they poured into now worthless securities backed by subprime U.S. mortgages, or loans made to high credit-risk individuals.

That prompted the U.S. Federal Reserve, the European Central Bank and central banks in Japan, Britain, Hong Kong and Australia — among others — to inject more than US$250 billion (€183.15 billion) into markets to ease those fears and soothe markets, which had gone into free fall.

People have once again been reminded of how vital the health of the U.S. economy is to that of the rest of the world.

"If America catches a cold then the whole world sneezes," said Nomaan Jamal, a 20-year-old intern at an investment bank in London.

If the difficulties deepen, those affected will not be just the well-heeled banks and hedge funds on Wall Street in London's City or in Frankfurt's West End financial district.

"I'm sitting here in Brazil and Brazilian markets have gotten crushed by this.... It's hit all the emerging markets," Rogoff told The Associated Press. "If this were to snowball next week, it would affect markets in Turkey, Indonesia, Brazil."

The uncertainty has led to ominous concerns about how far the crisis could go.

"It's very worrying for me also career-wise because volatility increases uncertainty of short term prospects and maybe long-term investors' prospects," said Bajay Nair, an intern at a London investment house.