IS THERE such a thing as panicky resilience? That might be the best way to describe the mood in stockmarkets. The S&P 500 index ended this week up a steely 2.6%. Yet nervousness is everywhere, with the flimsiest of rumours sending share prices sky-rocketing or lurching. Markets leapt on Wednesday after someone whispered that the Federal Reserve was about to announce an emergency rate cut. It was nonsense. The next day AIG, the world’s largest insurer, tumbled by 8%, before recovering, on unsubstantiated fears that it would suffer a whopping loss on its $33 billion of subprime mortgage-related assets.
While some investors have clearly been getting carried away, the crisis in credit markets is far from over—and may be about to get worse. One depressing indication of this was a vast, $8.4 billion writedown this week by Merrill Lynch, an investment bank....MORE