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Financial markets have become increasingly volatile, largely because of computer trading on a massive scale. A "transaction tax" could slow down the entire operation

As fears grow that Europe could face a full-blown financial crisis, potentially damaging the economy in the United States, investors are abandoning risky bets in the financial markets and rushing for safety instead.

Systems collapse when the irrational is considered rational.

As fear continues to spread over the impact of the Greek debt crisis, more people are questioning how such a small country could impact markets around the world.

Much has been discussed on the root causes for the current financial crisis, including but not limited to lessons on monetary policy, financial sector regulations, accounting rules. This note aims to stimulate debate and discussions on some of the pro-cyclical features in the system, possible remedial measures, and how monetary and fiscal authorities can play their professional roles at times of severe market distress. It also touches upon China's financial sector reform and macroeconomic policy to counter slowdown in economic growth. The major points here were presented at the G20 Meeting of Finance Ministers and Central Bank Governors in San Paulo, Brazil on November 15, 2008.

The media has been so preoccupied with acute symptoms of the debt crisis - sliding home prices, foreclosure abuses, ongoing Euromarket bank/sovereign debt stress, ongoing battles over financial regulation implementation, unhappiness over the Fed's QE2 - that lingering problems are not getting the attention they deserve. High on the list is the how the weak job market is affecting new college and advanced degree program graduates. We have an unspoken social contract: young people who get an education, particularly a "good" education (which means more elite universities, more serious courses of study, graduate degrees) are supposed to be rewarded by higher lifetime earnings. And the prospect of higher lifetime earnings in turn makes it rational to borrow to invest in education. But this whole premise has started to go awry, and the huge uptick in unemployment has started to make matters worse.

Knowing a bailout for Athens would be unpopular, Chancellor Angela Merkel wanted to postpone taking action on the Greek crisis until a key state election on May 9. But financial markets don't care about domestic German politics. Her delay could end up costing the country billions.

European Union leaders are working around the clock to create a new measure to defend the euro before financial markets reopen on Monday. EU finance ministers will meet on Sunday to discuss the plan.

Europe's consistent inability to move quickly enough to get ahead of the financial markets during the Greece crisis is shaking the euro and the foundations of the European Union itself, as critics of the euro have long predicted would happen.

Analysts and investors have begun to focus on the risks to European banks if severe budget cuts by debt-ridden countries freeze credit markets and cause a double-dip recession.

Leaders from the euro zone countries signed off on a support package for Greece on Friday night and pledged to take steps to stanch a spreading debt crisis before markets opened on Monday morning.

The growing crisis in the eurozone threatened to undermine the global economic recovery as markets plunged across the world on fears that European leaders may not be able to contain the debt contagion spreading from Greece.

Will the Greek malaise spread to Portugal? Fears of a national bankruptcy are now also growing in Lisbon, even though the country is capable of getting its debt under control by itself. The problem is that markets no longer have faith in the Portuguese to fix their own affairs.

Spain risks falling into the same trap as Greece, these investors say, unless it takes more forceful action. It could find itself unable to raise money on the private markets at acceptable interest rates - even though its government debt burden, as a share of the overall economy, is only half what Greece carries.

Like the giant financial bailout announced by the United States in 2008, the sweeping rescue package announced by Europe eased fears of a market collapse but left a big question: will it work long term? And as details crystallized of the package's main component - a promise by the European Union's member states to back 440 billion euros, or $560 billion, in new loans to bail out European economies - the wisdom of solving a debt crisis by taking on more debt was challenged by some analysts.

The pain of the European debt crisis is spreading, with the plummeting euro making Chinese companies less competitive in Europe, their largest market, and complicating any move to break the Chinese currency's peg to the dollar.

Markets in the United States and Europe fell and the euro hit another low for the year on Thursday after the European Central Bank disappointed investors hoping for decisive action to contain the euro zone's increasingly virulent debt crisis.

Trading derivatives on regulated exchanges would be a major step forward, but it may no longer be enough. Economic bubbles are not recognized by those inside of them, the Congress of the united States being no exception. The $604.6 trillion derivatives bubble, which is equal to more than ten times world GDP, is a global issue. If existing OTC derivatives remain in place and there are no restrictions on what banks can trade derivatives, there is no actual or immediate reduction of systemic risk. Thus, the risks that led to the financial crisis in 2008 are likely to remain present in the global financial system for years to come. In fact, many banks have more CDS risk now than in 2008. Passing a bank-approved version of the financial reform bill, while it may be portrayed as a political victory or serve to calm financial markets temporarily, is unlikely to prevent another global financial crisis.

At a defining moment for the European Union, its largest country, Germany, appeared divided and its leader absent, raising significant concerns about what kind of leadership Chancellor Angela Merkel can offer as the region tries to stabilize financial markets and shore up its common currency.

Hedge fund regulations, a tax on financial markets, a ban on naked short selling. The EU's bid to rein in the speculators has the financial industry up in arms. Lobbyists are already preparing to systematically attack the new proposals.