The share market turmoil very likely has further to go.
Just where, I can't tell you, but anything that moves with such dramatic speed and intensity as last week's crisis shows, is a deeply unpredictable problem.
The unprecedented worldwide intervention by central banks saw more than $380 billion injected into financial markets around the world Thursday and Friday to ease fears of a credit freeze.
Some commentators have been calling it a global liquidity crunch… it was more like a freeze. The money was there on Thursday but no one, especially in Europe, was prepared to deal with other financial intermediaries for fear that money lent would be lost and not repaid.
The freeze/crunch had it roots in the sub-prime mortgage crisis in the US which has now infected the wider US housing sector, from home builders to suppliers, retailers and providers of higher rated and even prime rated housing loans.
It has also shutdown the private equity/high yield bond markets, cast doubt on the functioning of the US commercial paper market, stopped most takeovers, caused companies to haul back on other deals, lifted the borrowing costs of all companies (no matter how good their ratings) and strained the interbank markets in Europe and the US with fears that more banks will have problems.
Asian markets lost ground for the third week in a row and European stock markets fell for the fourth straight week. It's clear now that the fear and loathing about sub-prime mortgage investments is much deeper in Europe than in the US where markets rose.
The Dow rose 0.44% last week and ended Friday at 13,239.54. That was after a 0.63% fall the prior week and a more than 4% drop in the week before that.
The Standard & Poor's 500 rose 1.44% to 1,453.64 and NASDAQ increased 1.34% higher on the week to Friday to finish at 2,544.89.
Here in Australia, the All Ords ended the week down 1.6% at 5965.2 and the ASX 200 was down 1.41%.
After Friday night's big swings on Wall Street and a more confident finish, our market might open higher today, or it could open flat and hesitant until it sees what happens elsewhere.
The Australian dollar finished down at 8.42 USc, up from the 84.10c seen here on Friday afternoon at the close.
Thursday and Friday's falls here and in the US didn't offset the confident trading on the first three days of the week that, looking back, appear overconfident.
The events of last Thursday and Friday should end once and for all the Pollyannaish claims of some commentators and participants that there is no contagion, the problems can be confined to the sub-prime sector and that it won't impact the wider markets and the wider economies of the world.
What should be concerning regulators is how much of the 'easy credit' that was sloshing around world markets in the first five months of the year has evaporated in the space of a month or less. Just gone. And how tens of billions of dollars in lending capacity vanished from Wednesday night to Thursday morning in Europe and the US: gone in just a few hours.
Regulators should now be concerned that hedge and private equity funds have enough money to get themselves through the tightness that lies ahead.
That $380 billion pumped into world markets has to be taken out, steadily and slowly to avoid re-igniting the easy money days and the newly re-discovered respect for risk.
A too precipitate withdrawal could plunge markets back into crisis which, the second time around, wouldn't be pretty.
The high performance Alpha hedge fund of Goldman Sachs in New York is now reported to have lost around a quarter of its value this year. That would put it falling from around $US12 billion to less than $US9 billion: it is a computer-driven fund that adjusts its positions according to market movements. It lost hundreds of millions of dollars late last week.
Many investors are locked into these funds and can't exit. Meanwhile other investment funds, especially those in trouble in Europe and at Bear Stearns, melted down because the market values for their investments fell so sharply as to be meaningless, or there was no market whatsoever.
That is another feature of this crash that has not been seen in other problems: the way people, who should have known better, set up structures that were illiquid; and how people who should have known better, invested in these funds without asking 'what happens if there's a problem, how liquid are the underlying investments?'
It is clear many investors and managers (such as BNP Paribas) had no idea and were fooled or fooled themselves.
BNP Paribas management should also be taken to task for not following AXA (Bear Stearns tried but couldn't save at least two).
If BNP management had come out last Thursday morning and said it was standing behind the funds and would provide a 'fair value' buy out price to cover the $US2.2 billion in them, like AXA Investments managers did for $1.2 billion or so in its two funds, the credit freeze might not have appeared, or appeared so quickly.
It was clumsy, gutless management which imperilled the wider markets.
After pumping in around $28 billion on Thursday (after the European central bank had pumped in around $153 billion), the US Fed added $45 billion in reserves in three moves on Friday in its biggest day of open market operations since September 11.
That means it saw more serious problems in the US on Friday than on Thursday.
It started before US markets opened, and then added funds twice subsequently during the trading day, which shows that it must have detected a liquidity strain in the US on Friday during trading, which would be a worry.
That could have been a result of the 200 point drop at the start of trading on Wall Street.
That was after the European Central Bank
