“Wall Street is stampeding on rumour, not on fundamentals. People have to calm down,” said Chris Whalen from the US consultancy Institutional Risk Analytics, as the Dow Jones industrial average plunged 100 points within three minutes of opening yesterday and liquidity concerns continued to spook investors across almost all markets and asset classes.

The Chicago Mercantile Exchange (CME), the world’s largest futures market, yesterday demanded bigger margin payments on fears that the speed and severity of losses in equity and debt markets would deteriorate.

The CME raised margins — effectively a down-payment on a current trading position — on currency, interest rate and index futures contracts, further raising demand for cash.

On the New York Stock Exchange, traders again marked down stock in Countrywide, America’s biggest mortgage lender, after it admitted that it had drawn down $11.5 billion (£5.8 billion) of borrowing facilities from a group of 40 banks overnight to avoid a funding crisis.

Shares in the lender, which this week said that one in every 20 of its mortgage borrowers was at least a month behind with repayments, plunged 15 per cent as Moody’s, the credit ratings agency, cut its rating on Countrywide’s debt to the lowest investment grade and said that it may cut it further to junk status.

Mr Whalen said: “Countrywide is a solid institution. I wouldn’t say it is any worse off than the JPMorgans of this world. Countrywide has 13 per cent capital and one of the best management teams in the business.”

Mr Whalen’s comments came after research yesterday from Merrill Lynch sounded a warning that Countrywide could go bust if liquidity dries up. Countrywide’s statement hit shares in Wall Street’s biggest banks, with Goldman Sachs down 3 per cent and Citigroup off 1 per cent.

Nervousness was fuelled after Henry Paulson, the US Treasury Secretary, said: “One of the natural consequences of the excesses is that some entities will cease to exist.”

Wall Street was spooked, too, by worse than expected US housebuilding data, which showed that builders started work on the fewest new homes for a decade last month.

The numbers hit shares in Home Depot, the DIY company, which were down to their lowest in three years.

Dimitry Fleming, of ING, noted a “growing wait-and-see attitude” among prospective homebuyers, with would-be buyers increasingly cut off from funding. “There’s nothing in today’s report pointing at a brighter outlook for homebuilders any time soon. US housing will keep markets in its hold for much longer.”

Fannie Mae, which finances or guarantees one in five US home loans, shocked markets when it said that growing mortgage defaults could “adversely affect our financial position” and unveiled a 36 per cent slide in full-year profits.

By early afternoon on Wall Street, the Dow Jones industrial average had fallen as much as 340 points, leaving it more than 10 per cent off record highs above 14,000 set in mid-July, although a late rebound would leave it down only 15.70 at 12,845.80 last night.

In a dash for safe havens, investors rushed to buy US Treasury notes and bonds, with surging prices for three-month Treasuries propelling their yield to the biggest one-day decline since since October 1987. Yields on benchmark ten-year Treasuries tumbled to 4.6 per cent, compared with more than 5.3 per cent in mid-June.

In commodities markets, oil, nickel and copper prices all tumbled on fears that market turmoil would hit global demand for materials. Even gold failed to fulfil its traditional safe-haven role. Amid suggestions that hedge funds are baling out of speculative holdings of gold, it closed more than 3 per cent off.

Carl Weinberg, of High Frequency Economics, said: “Things have moved on. What you are seeing in the US market is not sub-prime any more, it’s leveraged money deleveraging.

“What I am really worried about now is Japan, whose banking sector is yet to demonstrate its exposure. Most of the lending to these leveraged funds has been done through Japan.”

Merely a correction

“There’s no crunch going on, just a squeeze. And it’s certainly not a crash, just a correction. There’s no need to panic!” As investors feel the heat, they opt for the blandest words in a bid to will the market back on track. But what do the words mean?

A correction, in City argot, is a drop in any market of 10 per cent or more over a short period. By that standard, the havoc of the past month that has seen £210 billion wiped off the value of the FTSE 100, is merely a correction. A crash, on the other hand, is a fall of more than 20 per cent. And a recession is two consecutive quarters of decline in output. But beyond that, it gets hazy: what exactly is a slump? A crunch?

The fearful word with the oldest pedigree appears to be “bear”. The Oxford English Dictionary dates the phrase “to buy/sell the bear” back to the early 18th century.

It has nothing to do with blood sports. The OED says: “The term ‘bearskin jobber’, then applied to the dealer now called the bear, makes it probable that the original phrase was ‘sell the bearskin’, and that it originated in the well-known proverb, ‘To sell the bear’s skin before one has caught the bear’.”

— Gabriel Rozenberg

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