In 1958 I was offered a place as clerk in my godfather's City of London accountancy firm. I turmed it down for a job as an international manager. For 50 years I have been told I made a bad (financial) mistake by not keeping close the City financial experts. Perhaps after all my judgment all those years ago was correct, but it has taken 50 years to find out! It is aninteresting question -'in what way are th experts in Wall Street, the City, the Banks. the Cntral Banks really running a fair and efficient economic system?

Brian Lewis, Manila, Philippines

The US housing market is pretty much in a downward spiral. The repercussion all all to clear. Just look at the bad mortgage market over there and the knock on effect it is having on their markets.
It is my view that this is the beginning of a trend however things shall stabilise towards the end of the year.
These are turbulent times indeed for the global markets as a whole and although the fed intervened by reducing rates , it is only a short term solution.
There is also the China Syndrome which would also have an effect. As for these fanciful hedge funds -they in reality offer no protection for market losses and that is a fact.
The rates by the central Bank in the US would have to go up sooner or later when they have to smell the coffee and equally here in the UK I anticipate a rate rise of between 1 quarter to half percent within the next month.
Strategic portfolio investments have taken a major hit this week with the realisation of the market as a whole.

Sohail Khan, London, England

Basically, it seems that all stock exchanges are linked, regardless of their countries. If something happens in Asia, European markets fall, as well as the American markets. One market observes the other and it only leads to a chain reaction. There's no independent system, the markets around the world are one single thing. If there's a little problem in some point of it, the turbulence begins. Observing the foreign economy is a part of trading and negotiations on the exchange floor, but I think it's becoming a little too dangerous for the world economy to have these record-breaking plunges. And sometimes one single factor can lead to a disaster, since the global economy, at times, works based on speculation. I just hope the markets can get over soon. And, in my opinion, global indexes will turn around in a near future, and we'll see FTSE, DJIA and other indexes labeled positive again, but the American sub-prime mortgage market is an issue to be solved, fast. Let's hope for good news!

Luciano C. Ferreira, Jundiai, SP, Brazil

Yes Derek - far too simple.
The root of the problem is as the article concludes non-transparent debt bundling by lenders (high risk debts mixed with lower risk debts). Add to this unchecked lending fuelled by cheap money (the yen carry phenomenon) and you have potential problems when
1. Interest rates rise in a major sector forcing fore closure (the subprime loans)
2. The yen carry trade is hit by rising interest rates - returns on capital invested fall.

The financial markets are developing the jitters and equity selling by institutions to move to low risk investment (cash and government bonds) follows. The market is uncertain and a bit volatile ... unsure where the bottom is.

Geoff, Cheshire,

Central Bankers now have a choice between deflation or hyper-inflation. Deflation would be dreadful, hyper-inflation would be deadly.

Melvyn Lindley, Wakefield, West Yorkshire, England

I would just like to point out that Derek from York has zero clue of whats going on. I think you need to read the papers more carefully.

Lenders were way too aggressive in leveraging their positions and in doing so were oblivious to the risk of these positions. Sub-prime borrowers were mislead to this risk and when they failed it was like throwing a spanner in the works.

I still believe the worst is to come. The war has nothing to do with this. And for the record, it s not a recession, yet....

Didier, London, London

Derekl, I'm afraid that you are right........that was "all too simple", and mostly wrong.

1) The cost of the Iraq war is insignificant in terms of global economies. Supply and demand does not set interest rates, central banks do.

2) No idea what you are talking about here, miles off target I'm afraid.

3) Simplistic but broadly correct.

Max, Fradswell,

Having lived in north America for forty years most things here are based on hyperbole and that includes business and finance a lot people nowadays do not engage their brains they are to quick to follow

michael elbourne , Victoria.BC, Canada

In answer to why fairly valued blus chip equities are falling in value, the reason is quite simple. Hedge funds and other investment outfits are being forced to meet strict margin calls on their leveraged positions. The only way they can meet these are to sell valuable assets they're making money on. Hence the sell off in blue chip equities. This of course leaves the hedge funds with their unsaleable duff investments which should make life interesting for them when their investors try to extricate their funds from them.

Stephanie James, London, England

I don’t know much about economics, but I read some history. Isn’t all this just a replay of 1929? You borrow cheap money at the bank and get a much bigger return on the stock market. That means everyone can be millionaires without working; right?
I have been looking at this Yen carry trade for a while and wondering when the house of cards would fall down.

Dave Hill, Kuala Lumpur, Malaysia

i hate all hedge-funds, they always cause financial turmoil !

VIC216, HONG KONG, HONG KONG

The yen carry trade has permeated everywhere I believe.

I am only a 'little' man, but a financial adviser offered me a variant of the yen carry trade as a money making investment last year.

Recognising that, if true, what was being offered was like the 'midas' touch, and therefore too good to be true, it didn't take me long to work out that even a small change in the yen exchange rate could wipe me out.

If products like these were being hawked around to the man in the street, then they are in every nook and cranny of the system.

MarkS, Leeds,

The "strength" of the Global Economy and with it company performance has largely been oiled by cheap debt - once this lubricant has been removed, and it is vanishing before our eyes, then we will get a proper picture of its durability.
I think there is a huge amount of misguided complacency as to the seriousness of the situation and a complete underestimation of how bad things are going to get.

helene johnson, sydney,

"Prolonged spells of low interest rates generally mean that risk will be mispriced somewhere in the system."

This sounds fundamental and important. Could you perhaps do a background piece on it for the benefit of those of us who learnt our economics on the hoof instead of in the classroom?

I see resonances between the rating agencies and the way "serious" Wall Street analysts saw nothing wrong with telecoms companies investing in networks of "dark fibre" a few years ago. In the end, it was the markets, not the regulators, which formed most of the impetus towards better standards...

Ian Kemmish, Biggleswade, UK

It really is time to introduce a system where only effort and efficiency are looked upon as being worthwhile goals in life.

In other words a fair reward for a fairly accomplished job.

We need to get away from relying upon more and more as a way of life - otherwise our children and our children's children will suffer.

The Stock Exchanges over the whole world are nothing but gambling dens for vapid minds.

Ian, Zurich, Switzerland

The strange thing, as far as equities go, is that P/Es have not become silly. Most equities were and are - especially now are - soundly priced and good value. Exceptions were those stocks propped up by takeover speculation, which should now be going through the floor. Question is, why is the highly-paid market so unprofessional that pretty much everything else is being temporarily dragged down with them?

Ivor Duarte, Shepperton, UK

The fault lies squarely with the central banks, with fixed low inflation targets becoming the new Gold Standard, a stupid rigidity based on usurious greed.

The era of high real interest rates with declining nominal interest rates has to end, and be replaced with an era of low or negative real interest rates and slowly increasing nominal rates, or there will be World deflation and another Great Depression.

There was a time when virtually every banker in the world thought the Gold Standard was the key to prudent economic management. Keynes showed them why they were wrong and he ended the Great Depression they caused by their vanity, stubbornness and usurious greed.

David Goldsby, Cheltenham, England

... "more than £120 billion has been wiped off the value of the market in a week" ...

So where has this £120 billion gone? Where should we look for it? Has someone taken it? Or maybe it was not really there in the first place? Market value has much to do with consensual perception and little else.

Lending cheap money to known delinquents for putatively highly profitable returns suggests deiinquency among the lenders, the profiteers, and those who are paid to supervise them. It pains me to think of ordinary taxpayer's money being used to shore up this delinquent activity: it isn't just immoral; it is grand larceny on a colossal and eye-watering scale. No doubt it will be ordinary folks who have - once again - to pick up the tab for this extraordinary recklessness . Expect unemployment and repossessions to follow. Beware the barbarians in sharp suits!

Jonathan Stiles, Helsinki, Finland

This is the best artcicle I've read about the credit crunch. I think I think, or I hope I think that I finally know what's going on. I'm still wondering why gold went down though.

Walter Hicks, Beaverton , Oregon

Combatting the spread of communism in the Cold War we were patient, and in 1991, the problem just went away by implosion (sort of).

Now we have another war. Perhaps our enemies will just be patient too, and watch while the West's spread of its greedy capitalistic ways takes care of us, and we will implode too.

Violence averted. And then what.

Check Roman history.

John Clark, Hollywood, USA/California

Can't wait to see all these greedy people go up in smoke!
Who cares if the rich have to loose their wasteful way of living?
Goo ridance...

june, berlin, US

It all seems so complicated in the papers but if I ignore the spin, it seems to me that:
1. The war in Iraq and Afghanistan has sucked up so much money that the US is borrowing billions to cover it. This means interest rates rise ( its called supply and demand).

2. Interest rates rise as a consequence of the extra demand for loans. When this happens companies that make money off lending (mortgage companies etc) fail and anyone else investing in them or in anything that is underpinned by cheap interest rates) fail.

3. When mortgages go up, property prices go down. People get worried and spend less. Its called a recession. In a recession, any business that depends on people spending money also has problems.

Don't really need to refer to CDO's and "Subprime problems " and "Hedge Funds "to understand it all, do we?. Or is this all too simple?

Derek, York, UK

As Winston would have said in these circumstances:" "It is not given to us to peer into the future, so let us slam the door on the past, roll up our sleeves and get to work creating a better present, and hope for the more prosperous future".

Kenneth B. Smith, P.E., Wilmington, United States/DE DE