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Financial Fire Fans Across Global Borders

Wall Street's meltdown isn't just America's problem.

While many around the world are watching the financial crisis unfold as if it were a gruesome spectator sport, the consequences for businesses and ordinary people from Tokyo to Buenos Aires could dig deep and last long. And that's regardless of what happens to the U.S. government's bailout plan.

Asia's export-driven manufacturers face the prospect of their biggest market - the United States - suddenly drying up. Retailers could see a slow Christmas in Europe and America. And spooked lenders around the world may turn off the tap of capital to companies and consumers, sending economies into a tailspin.

"It's like I'm holding my breath, waiting for the collapse," said Dmitry Zhiltsov, a recruiter in St. Petersburg, Russia, worried about his company's prospects, his family finances and his mortgage.

In a report Friday, the World Economic Forum was blunt about the risks. It warned that the world faces a "heightened risk of widespread contagion" and of "massive consumer credit defaults."

Yet the overall message was: Don't panic. The forum urged regulators to help out but not over-protect, "to balance the immediate imperative to prevent further damage with the longer-term need to ensure future market competitiveness and innovation."

That may be an elusive equilibrium, especially in today's climate. Consultancy Global Insight expects things "to get worse before they get better" and doesn't expect a global recovery until 2010.

In early trading Monday, Asian stock markets were mixed after U.S. Congressional leaders and the White House agreed Sunday to a US$700 billion rescue of the ailing financial industry.

Tokyo's benchmark Nikkei 225 index was up 0.5 percent, while Hong Kong's Hang Seng index fell 2 percent amid lingering anxiety over the effectiveness of the plan, which still needs official approval from both houses of Congress.

A swoop through a few major cities shows how legions of lives are linked, in different ways, to the U.S. financial sector and its costliest crisis ever.

In Tokyo, the mood is strangely serene, as the world's No. 2 economy considers how to cope - and how to capitalize on the weaknesses of No. 1.

Japanese financial institutions suffered little from the subprime crisis that ignited today's fires on Wall Street, and are now flush with cash. Their conservative lending strategies, and lessons learned after Japan's economic bubble burst in the early 1990s, are paying off.

"Quite a few businesses, especially banks, are seeing this as a major opportunity," said Martin Schulz, an economist at Fujitsu Research Institute.

Nomura Holdings Inc., Japan's biggest brokerage, is buying the Asian, European and Middle Eastern operations of collapsed U.S. investment bank Lehman Brothers. Top Japanese bank Mitsubishi UFJ Financial Group Inc. is buying up to 20 percent of Morgan Stanley.

Long-term, though, the financial crisis is bad news for Japan's export-driven economy. Government data released Thursday showed a rare trade deficit in August - including a 21.8 percent drop in exports to the U.S.

Manufacturers in China are antsy about export losses, too.

"Clothes are constantly on sale in the U.S. We can't make money," said the manager of Tianjin Excellent Import & Export Co., in Tianjin, southeast of Beijing.

The textile company, with 100 employees and $40 million in exports last year, has slashed shipments to the United States and shut its office in Paris, said the manager, who only gave his family name, Yang. The company is refocusing on Japanese and Bangladeshi markets.

Overall, the Chinese and Indian economies are holding steady as the U.S. falters, partly thanks to domestic demand.

China's treasury ran a 1 trillion yuan ($130 billion) surplus in the first half of the year, and its financial institutions are among the world's strongest. A run on banks is unlikely because Chinese families have few other places to put their money.

Not so in Hong Kong.

The territory suffered a big bank run last week - with thousands of customers swarming Bank of East Asia offices there and in Singapore - and 11 people were arrested after rumors involving troubled American Insurance Group Inc. fueled market jitters.

A few times zones westward, Moscow's financial markets have swooned in recent weeks, partly under the avalanche of bad news in New York.

Zhiltsov, the Russian recruiter, fears demand for investment bankers and financial analysts will dry up, gouging his company's profits. "All we need is for the housing bubble to end too," he said drily, referring to real estate prices that have mushroomed in Russian cities.

In sober "Old Europe," bankers, retailers and consumers are realizing that no one is immune to the fever on financial markets.

When Lehman Brothers imploded, European banks counted their chickens and sighed with relief: Their exposure to Lehman's risks looked limited. But now Dutch-Belgian bank Fortis is teetering - and blaming uncertainty over the U.S. bailout package for its volatile share price. On Sunday, Congressional leaders and the Bush administration reached a tentative deal on the $700 billion bailout designed to prop up the financial system and avert a deep recession.

In Britain, even the Queen's tailor is careening. Trading in shares of Hardy Amies PLC, the Savile Row tailor famous for making dresses for Queen Elizabeth II, was suspended Friday after it disclosed it might go into administration for lack of cash.

"The news of what's been happening in the financial markets over the past two weeks has been very worrying for consumers and has impacted their confidence," said Clive Black, retail analyst at Shore Capital Stockbrokers in London.

"There will be more companies finding it difficult and the banks aren't in a position to help them as much after the credit crunch, so there will undoubtedly be more casualties down the line," he added.

Fears of credit cards and corporate loans drying up have given fodder to anti-capitalism activists like Jerome Sinpaseuth, who was handing out fliers on a posh Paris square. "For a long time people considered us jokers, extremists from the left. But now more and more people think we were right" to criticize unfettered corporate profits, he said.

Sinpaseuth has a kindred spirit across the Atlantic in Brazil, if an unlikely one: Patricia Fraga, a 37-year-old bank manager who works on Sao Paolo's Avenida Paulista, the financial heart of Latin America's largest economy.

"The crisis in Wall Street makes it more than clear that financial institutions must be under some form of permanent government supervision," she said. "It also shows that countries must reduce their dependence on the American market."

The global fallout from Wall Street's mistakes isn't just hurting stock portfolios. It's also denting dreams.

India's best and brightest, who once sought jobs in medicine and engineering, have turned to business schools in increasing numbers. News of Lehman's bankruptcy filled PaGalGuY.com, a message board for India's aspiring financiers, with mournful comments.

"Is it a time for us b-school aspirants to reassess our career goals?" wrote a blogger identified as Sukrit Munjal, 22, from Bangalore. Another blogger who called himself Unhappy Demon, said simply: "Don't post these kind of sick scary news man."