Now, fear is running in the opposite direction. Worries about toxic government debt held by European banks have hammered U.S. stocks and threaten to freeze credit on both sides of the Atlantic.
And traders are wondering: Could Europe's government-debt crisis spread through the U.S. financial system?
No one's sure because no one knows how much toxic debt European banks hold -- or how much risk that debt poses to U.S. banks. But investors are worried.
The 2008 financial crisis left countries like Greece, Ireland and Portugal holding huge debts. The three have required bailouts from the European Union and the International Monetary Fund totaling $520 billion. Italy and Spain, which are much bigger economies, might need bailouts, too.
As the crisis has intensified, Spanish and Italian interest rates have surged. Escalating rates could throw their economies back into recession -- which would worsen their debt loads. This week, the European Central Bank started buying Italian and Spanish debt to try to drive rates back down.
Should Italy or Spain default, European banks that hold their bonds would suffer. Wall Street's fear is that the contagion would imperil U.S. banks that do business with those European banks.
French banks, with huge amounts of Italian and Greek government debt, are especially vulnerable. Shares in Societe Generale, France's No. 2 bank, plunged nearly 15 percent Wednesday on rumors it was teetering under the weight of debts tied to troubled Eurozone economies. The bank rejected the rumors as unfounded.
French regulators on Thursday banned short-selling of bank and insurance company stocks, preventing speculators from betting against them and driving their prices down when rumors flare. Societe Generale's stock recovered 3.7 percent Thursday. But most other European banks fell sharply. (more)
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