Wild gyrations in the stock market. Big banks holding risky bonds. Fear that toxic assets will contaminate banks and freeze up credit on both sides of the Atlantic. Wall Street is having a flashback to the panicky days of September and October 2008, when Lehman Brothers collapsed and American International Group needed a bailout that became the biggest on Wall Street — $182 billion (Dh668.4 billion). This time investors are worried that Europe\'s debt crisis could slam an already weak US economy. But few analysts think it will do as much damage as the collapse in home prices and mortgage-backed securities did in 2008, when they caused a credit squeeze and banks feared lending to each other. ‘In good shape\' Article continues below Compared with the fall of 2008, \"our larger banks are in pretty good shape,\" says Philip Swagel, a former Treasury official who is now an economist at the University of Maryland. \"They\'ve rebuilt their capital positions. The institutions that are exposed [to European debt] are in much better shape.\" After months of worrying about the risk of default by Greece and Portugal, investors fear that two much bigger countries — Italy and Spain — might be unable to meet their debt payments. They also worry that Italian and Spanish banks have loaded up on their countries\' government bonds and haven\'t valued them accurately. Analysts say a default by an economy as big as Italy\'s or Spain\'s would likely throw Europe into recession. That would further strain a fragile US economy and weigh on the global financial system. If Italy or Spain defaulted, their banks would absorb big losses that could spread to other institutions. French banks have lent heavily to Italian banks, and US banks have lent heavily to French banks. \"You have the potential for a domino effect,\" says Thomas Abruzzo, head of the North American financial institutions team at Fitch Ratings. Protection against loss However, Abruzzo says he\'s confident that US banks have hedged much of the risk they\'ve taken in Europe to protect against steep losses. They\'ve also built up their capital — the financial buffer that protects them against losses. What\'s more, the Italian and Spanish government debts are better understood than the exotic mortgage securities at the heart of the 2008 crisis that began in the United States. Then, no one knew which banks were holding how much in mortgage securities or what those securities were worth. Banks stopped lending to each other. Credit froze up. Panic set in. Corporations that relied on short-term loans faced a debilitating cash crunch. These days, US corporations are hoarding cash and don\'t require immediate access to financial markets. Banks also have changed the way they fund themselves. In 2007, they relied heavily on very short-term loans. They needed to be repaid, and replaced, quickly. When markets seized up, banks quickly ran out of money. Now they have diversified their funding streams with longer-term borrowings. They have more agility to avoid heavy losses. ‘Liquidity crisis\' \"Companies now are not in a position where they can be quickly put into a liquidity crisis,\" said Thomas Tzitzouris, head of fixed income research at Strategas Partners. The scope of the current trouble, however, is much wider than it was in 2008. The institutions in trouble now are not a few banks or trading firms: They are entire countries.