With a new round of financial turmoil cascading from country to country and market to market, many are labeling the current chaos a repeat of 2008—just substitute "downgrade" for "Lehman collapse." But that would be a mistake, as this crisis differs from 2008 in three major ways, writes Francesco Guerrera in the Wall Street Journal. Last time, the crisis was a bottom-up one, moving from "over-optimistic" homebuyers to Wall Street; this time, it's a top-down mess, originating with governments that businesses and financial institutions no longer trust.
Second, the last time around the overabundance of cheap credit led to a "crash diet of deleveraging;" this time, everyone is sitting on mounds of cash and avoiding debt. Difference No. 3 concerns the solution: Last time, governments had to provide liquidity—sure, it cost $1 trillion and screwed over the average taxpayer, but it prevented a global depression. This time, however, there's plenty of liquidity, but no confidence in US and European governments. "In 2011, the financial world can't go cap in hand to the political capitals, hoping for a handout," writes Guerrera. This time "markets will have to rely on their inner strength or wait for politicians to take radical measures to spur economic growth."