The recent panic among the ill educated but greed consumed trader class started with well intentioned mandates which directed the US banks to make mortgages to "red lined" populations. That might have been harmless in a tightly regulated banking and investment system of systems, but the Bush Administration and their committed anti-regulation friends (in both parties) dumped the regulatory ballast over the side and freed the traders of any restraint. The result was an orgy of speculative and trading excess in mortgages and mortgage derivatives that rode on a myriad of mortgages in the hands of many who could not possibly pay them off or even pay them at all for very long.
The bubble, like all bubbles, eventually burst, wiping out trillions in paper profits and some peoples' real money. Confidence in the value of the banks declined following the realization of the potential worthlessness of the paper they were sitting on. The contraction in credit between banks followed.
The panic in the trader class has been impressive. It has been pumped up a lot by the trader fringe group employed by the financial media.
But, I think the bottom of the panicky slide is approaching. A fire only burns so long as there is fuel. The hedge fund managers and other such riff-raff have been busy de-leveraging themselves. That means that they have been divesting assets in order to acquire cash with which to stabilize the companies that they run. After all, the life style that enables them to stand at the bar in Ben Benson's and bellow boorishly to each other depends on money in the till.
We are nearing the bottom of the pile of fuel available. The governments have done everything they could for the restoration of trading confidence. The stage is set for the moment when investors and traders look around and see that huge, confidence devouring swings in the markets have eased. At that moment it will be noticed that money is to be made at these prices and the game will resume. pl