The Gulf and Asia now face a new and urgent threat to financial stability: sovereign arbitrage. With banks in Europe and the US now backed by their respective governments, any bank outside these guarantees not backed by its own government represents a riskier investment. It's tantamount to a sudden, sweeping ratings change for all Western banks. Overnight, they went from shaky to sovereign. So if you think, say, Bank Mashreq - which I mention only because it is the country's largest bank that is not already partially government-owned ? is less likely to go under than the US government, no worries. If you think Uncle Sam might still have a few more laps to run, the UAE would be well-advised to jump in and start the kind of shotgun wedding Washington arm-wrestled its own banks into earlier this week. This perhaps explains why Henry Paulson obliged even the relatively healthy bank Wells Fargo to accept federal funds: he knew, as other banks will soon realize, that once the US government backed other banks, that Wells would suddenly not look so stalwart. What's going to continue to drag financial shares down is the widening recession in the US, one that threatens to throw the whole world into a slowdown that to many countries will result in a real recession or slower growth that feels recessionary. US home prices look like they are still falling, which will continue to bite into American consumption. US retail sales fell sharply in September, indicating that consumers are already responding to the stormy skies over credit markets. But once the terrifying collapse of the global financial system has been averted through temporary nationalization, we can look at the bright side of all this: de-leveraging can now continue, which means for any investor with cash, it's bargain-shopping time. Inflation is licked in most parts of the world thanks to recession, which means bonds now offer some ballast to portfolios once again, or at least they should in time. With a steady supply of reliable yields (preferably from countries with current account surpluses whose currencies won't go the way of Iceland's), investors are free to hunt for stocks in companies that will benefit from the tougher environment.