This process
was in many ways parallel to the “recycling” of petroleum exporter deficits in the
1970s, when oil economies placed money in US banks. In turn, US banks made loans
to emerging market economies and thereby helped finance energy imports. These
exchanges not surprisingly left US banks vulnerable when Latin American countries
encountered debt repayment problems in the early 1980s. French and German banks
likewise built up claims on the periphery that were far in excess of their respective
countries’ bilateral surpluses vis-`a-vis the European periphery. These facts, which are
laid out clearly in the Hale and Obstfeld analysis, suggest that poor banking regulation
in the North contributed significantly to the crisis. Thus the simple morality tale of a
thrifty North and an impecunious South misses completely a key factor underlying the
crisis