why is financial market fragile

So why is the market still fragile? To start with, less than 10% of the $100 billion or so of losses expected from reckless subprime lending have been recognized. Even if the U.S. housing market doesn't deteriorate further, that overhang suggests a steady stream of salvos directed at still jittery markets. And thanks to the interlinked nature of modern global finance, the actual losses are likely to keep popping up in unexpected places. Another run on a bank in another part of the world could get everybody ducking for cover again. There are also two big macroeconomic risks - repricing and inflation First, there is a housing-led recession, as loan defaults provoke foreclosures, driving prices down. The Fed's actions haven't removed that possibility. Meanwhile, the bad news of the last two months has forced companies across the world to start planning for the possibility of an economic slow-down. The risk is that recession-planning could become self-fulfilling. If it does, a wide range of asset prices could resume their downward lurch. That would cause further losses by highly-indebted institutions like hedge funds, more dumping of assets at distressed prices and more credit jitters. Second, inflation could perk up. Bond markets are already getting worried that the Fed's aggressive interest-rate cut could have that effect. America's continued reliance on borrowing money from the rest of the world to finance its huge current account deficit makes the dollar vulnerable. If there's a buyers' strike by international investors worried about U.S. inflation, the greenback's graceful fall could turn into a rout.