The lack of information about bad debts does not stop in developed countries. China, Brazil, Russia, and even India are dominated by state-owned banks whose lending is heavily influenced by politicians and they have less of an incentive to reveal the extent of the problem

The crash of 2008 was caused by two things. The first was a mountain of bad debt. This was accumulated during a period of economic growth when credit was given too easily to too many people. Of course this is a normal part of a business cycle. What looks like a good credit bet when times are good can look like a huge mistake when the economy turns bad. What turns a contraction into a crash is the other factor: bad information.

The information question is now causing problems for several financial institutions in developed countries. Bank of America's stock has fallen by 50% since May. Bank of America has $460 billion worth of real estate-related lending on its books and no one really knows how much it is worth. The real estate market in the US has continued to deflate, but information as to exactly how much is the subject of heated debate.

Like Bank of America, the shares of French banks including Société Générale, BNP Paribas and Crédit Agricole have been hit by large short-term losses. These were sparked by rumours, many of which turned out to be untrue. Still the risks associated with the French banks' exposure to potential losses from the sovereign debts of Italy and Spain are unknown. But the lack of information about bad debts certainly does not stop in developed countries. The issue is becoming quite severe in emerging markets as well.

China recently announced plans to bailout its local governments by assuming 2-3 trillion yuan ($308billion-$463 billion). The total amount of bad debts could go much higher, because many of these estimates do not include off-balance sheet loans. The information about debts in China is opaque even to the Chinese, much less to global markets. This could cause some severe problems. The ratings agency Fitch gave China the worst grade in its three-level scale of potential for systemic stress. Sixty per cent of countries that received the score had banking crises within a few years.

China is hardly alone. Most of the emerging market economies have been growing at a blazing pace. Over the past two years, emerging market economies have grown in excess of 7%, both stock markets and real estate prices have reached all-time highs. It would hardly be a surprise if there were credit problems, but information about the extent of the issues is hard to find.

India is a case in point. A recent report suggests that at least 17% of Indian banks' outstanding loan assets could be on the verge of default, and debt ratings for companies are deteriorating at the fastest pace since 2009. Public sector banks make up the vast majority of the banks in India and could be the worst hit, no doubt the result of loans to politically connected borrowers. The bad loans of the State Bank of India, the nation's largest lender, are a case in point. They rose 77% in the first three months of 2011, while the bank's net income fell 99%.

Brazil's banks are having similar problems. Brazil's biggest lender, Itau Unibanco raised its default-rate forecast for 2011 in July. Its shares have fallen 21% this year. In fact the entire Brazilian financial sector has lost more than its counterparts in Europe, as consumer defaults hit a 12-month high. But the exact numbers are not available, because Brazil has yet to implement recent legislation to allow Brazilian lenders to collect and share information on all borrowers.

Unlike Brazil, Turkey took the unusual step of lowering interest rates to protect itself from the wall of liquidity sloshing around the world. It didn't help. Despite attempts to curb bank lending, Turkey has experienced credit growth of more than 30%. Its reliance on foreign capital and a record current account deficit sets the stage for a capital flight crisis.

Not to be outdone, Russia's fifth-largest bank, Bank of Moscow, racked up at least 150 billion roubles ($5.4 billion) of unsecured bad loans. It recently required a $14 billion rescue. It may not be the only one required. Russia's banking sector, like the other BRICs, is dominated by state-owned banks whose lending is heavily influenced by politicians and not necessarily by accurate judgments of solvency. Worse, state banks have less of an incentive to reveal the extent of the problem, since their bad loans might reflect badly on those in power. So the information is likely to remain hidden until there are no alternatives.

But emerging market debt issues are not limited to emerging markets. The third-largest US bank, Citigroup, gets more than half of its profit from emerging markets. The stagnation of developed market economies has encouraged their banks to look to emerging markets for growth. Given the present issues in emerging markets, they might have been better off at home.

(The writer is president of Emerging Market Strategies and can be contacted at [email protected]  or [email protected].)