REGULATION OVERSEAS....Megan McArdle:
Europe's ongoing disaster is starting to match ours. This not only seriously challenge the idea that the main problem is American bank regulation everyone is having the same problem, despite different regulatory regimes but also puts us in much deeper jeopardy.
Be careful here. Weak regulation, especially of the shadow banking system, may not be the only culprit in the credit crisis, but it is a culprit. And it's a culprit in Europe as well as the U.S., as Henry Farrell points out:
European business leaders are now complaining that the EU isn't regulating enough that is, it isn't engaging in coordinated action to stop its own financial markets from tanking. The reasons for EU inaction lie in the lack of any structures that would militate towards concerted action to address problems of market confidence, in large part because European financial markets are even less regulated than their US equivalents (as I've noted before the EU is typically more interested in liberalizing markets than restraining them, contrary to the general impression in the US).
The problems in the European banking system are pretty similar to the problems in the U.S.: too much leverage, too much credulity about the housing market, and too much manic buying and selling of opaque and complex financial derivatives. Like the U.S., the EU could have saved itself at least part of its current pain if it had adopted a more sensible regulatory scheme. But like the U.S., they didn't.