What financial companies could learn (but won’t) from the toy business.

With lead paint, the odds of sickness were low to begin with. And the extent of the damage was relatively low; less than 1 percent of toys manufactured in 2007 had to be recalled, according to Julie Livingston of the Toy Industry Association of America. But parents didn’t want to take the chance. With the financial services industry, the contagion analogy is even more apt. Bad loans lead to a loss of confidence in the entire banking system, freezing up lending across the board.

People will notice problems that start far away.
Outsourcing toys is nothing new: Mattel is about to mark its 50^th year manufacturing Barbie—in Japan. The application of “Made in China” labels to plastic trinkets—and the Nike and Coca-Cola sweatshop controversies in the decades since—have made folks accustomed to a bit of malfeasance in their manufacturers.

With financial services, although the industry is more complex, recent events show there’s a hint of something foreign in the air. The Dubai Ports deal and constant hand-wringing over sovereign-wealth funds have brought the United States’ indebtedness to other powers to the fore. Guess what the destination country for deposits in the online bank “Icesave” was? (Hint: It’s the country with “Ice” in its name.) That “Union Made in the USA” label is hard to make stick, whether onto loans or GI Joes. (And with so much of the problem homegrown, it may not matter, anyway.)