The ultimate worry about the global economic collapse?

Remember how much members of the House and Senate seem to be rattled after their meeting with Paulson and Bernanke a couple of weeks ago? I don't know what happened behind those doors, but at least this commentary on how things are unfolding in Iceland suggests that members of Congress might have been briefed on some really scary, and probable, scenarios:

[They] couldn't anticipate that when a tiny country bails out a bank whose assets vastly exceed the country's own GDP, then the sovereign itself loses much creditworthiness. One scary datapoint: the assets of Kaupthing Bank amount to 623% of Iceland's GDP, which is possibly why its own credit default swaps are trading somewhere over 2500bp.
How bad can things get in Iceland?
Here's what one local emailed Tom Braithwaite:
They are fighting powers that they are powerless to fight. It's like tackling a storm raging in the sea with a teaspoon.The main supermarket can't get imported goods because they have no currency. The shops are half empty. One of the store managers has advised people to start hoarding. We're running out of oil. And winter came last night - about a month early.

Tyler Cowen has a link to the Financial Times that has a list of European banks with assets greater than the gdp of their respective home countries. UBS, which was one of the earliest banks to admit to its messed up books, had assets that were 484% of the Swiss GDP!