“The western financial system we knew has collapsed”
I would modify this to: The wester financial system is in serious risk of collapsing.
That’s why Bernanke and Paulson are willing to throw so much at it to fix it. If it completely collapses, the cost of that to society will be much worse than say increased inflation for the foreseeable future, increased debt, etc.
http://www.nakedcapitalism.com/2008/11/western-financial-system-we-knew-has.html