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Markets were not only absolutely wrong, they were absolutely wrong on so many things on such an unprecedented global basis. Now things are blowing up. In the thick of it all, confidence in the securitization, "repo" and derivatives markets has been broken.
As a result, Wall Street simply no longer has the wherewithal to apportion ample finance for securities speculation. Without speculative demand for high-yielding loans and securities, bubble economies are starved of sufficient finance. And with asset markets bursting everywhere, this has quickly evolved into history's biggest margin call.
Scores of derivative structures used to speculate in the asset bubbles have collapsed - because of counterparty issues, illiquidity, or the structures just didn't make any sense to begin with.
Moreover, the whole notion that derivatives would provide an effective hedging mechanism is proving a fallacy. Again, counterparty issues and illiquidity are the culprits. Markets can't hedge themselves, as there is no one with the wherewithal to take the other side of the trade (especially during devastating bear markets). In particular, the credit default swap structure is proving an unmitigated disaster - for bond, equities and currency markets. Hopefully this period of liquidation and deleveraging will be over very soon.
Hah! The obligatory (and false) bit of optimism at the end!
It's going to be a long and bumpy ride down the hill.
This article is five pages long. It is well worth-while to glance over some of the detailed reports contained in it.
