In the case of State Street Global Markets’ latest report, however, there is a more direct link than simple hyperbole about the way investors are feeling. The firm recently had a chat with former U.S. Treasury Secretary Larry Summers who defined what he saw as the five vicious circles of the current financial crisis.

It goes like this:

Circle One: House prices fall in value, putting some people into negative equity and leading some to default on mortgages. Foreclosures further erode asset values.

Circle Two: Falling asset prices erode bank capital, making banks more hesitant to lend, leading to further asset price falls and lower capital levels.

Circle Three: A slowing real economy reduces financial asset prices, leading to less lending and less investment. This causes the economy to slow further.

Circle Four: A slowing economy means less demand for goods and services, leading to lower employment and even less demand.

Circle Five:  Confidence in the financial system breaks down. State Street says that investment flows and moves on global stock markets clearly suggest this is where the financial world is at the moment.

It is worth remembering, perhaps, as investors stare into the inferno, that Dante did come back from his visit to Hell’s circles. But then again, he did not go straight to Heaven. There were seven terraces of Purgatory to manoeuvre through first.

It has great scenery and wildlife but the financial situation is in need of repair and a buyer must collect in person.

Bidding started at 99 pence but had reached 10 million pounds ($17.28 million) by mid-morning on Friday.

Globally renowned singer Bjork was “not included” in the sale, according to the notice, but there were nonetheless 26 anonymous bidders and 84 bids.

“Located in the mid-Atlantic ridge in the North Atlantic Ocean, Iceland will provide the winning bidder with — a habitable environment, Icelandic Horses and admittedly a somewhat sketchy financial situation,” the notice reads.

Bidders’ questions included: “Do you offer volcano/earthquake insurance?”, “Is it possible that my payment will be frozen?”, “Is this the tip of the iceberg?” and “Will you accept C.O.D. as a form of payment?”

– By Carolyn Cohn

One aspect on which we have seen almost universal agreement, however, is that investors have cottoned onto the immense risk of bankrolling investments they don’t quite understand. The trend for increasing pension fund investments in alternative strategies starts to look like a busted flush, and you have to question whether demand for the UK’s planned retail funds of hedge funds will sustain the new industry.

Schroders CIO Alan Brown told us this week: “People will be taking a long hard look at complex financial products.”

“If you see a creative investment banker head towards you, you are likely to develop short arms and deep pockets.”

It’s clearly an issue which encourages investors towards the poetic; Colin Melvin, CEO at the equity ownership service at Hermes told a sustainable investment briefing on Wednesday: “What we’ve seen perhaps is a multiplicity or complexity of investment products and services which has grown up in order to maintain unusual profitability of the industry. As you shine a light on it, it will simper off into the dark again.”

And Robert Talbut, CIO of Royal London Asset Management lends further weight to the argument.

He told us: “We see a return to simplicity in products - complexity is out. The absolute return-type product is significantly under threat - clients will be wary of the opacity and prime broking is getting much harder to come by.”

Some industry players talk about a return to favour for old-fashioned, long-only balanced funds, with some interest for high-grade investment bonds, or perhaps global equities. The trouble at the moment is that many investors see few viable bolt holes for their cash. Just ask Andrew Chapman, pensions manager at the 2 billion pound John Lewis pension scheme.

“There is nowhere to hide,” he said. “This is a whole new paradigm and there are too many uncertainties out there - you make one move and you might be worse off than what you are doing now.”

 – Joel Dimmock, Claire Milhench, Raji Menon

Whether it’s on Reuters.com or during the presidential debates, one of the most vexing aspects of the financial crisis is that it’s difficult to explain in simple terms. Nevertheless, the problems that began in subprime mortgages have rippled outwards for more than a year, not only taking out storied names like Lehman Brothers but affecting everyday people far removed from the world of Wall Street.

Where to start? With an explanation of a collateralized debt obligation, or a TED spread? With a flow chart showing the outsized importance of Fannie Mae and Freddie Mac? You would be forgiven for clutching your head in your hands, but do not despair.

There are some very good online resources that are designed to explain the credit crisis, beginning with our own site. We can explain recent major events , which countries have been affected , and yes, even the TED spread.

Here are a few more resources from around the Web:

The Money Meltdown

Online journalist Matt Thompson – “I’m not an economist, or even an economics geek, or even someone who knows anything about economics” — created this blog in late September after despairing on finding a single site that compiles “useful, authoritative, and comprehensive information about our current financial crisis in an accessible way.”

It includes links to background, key facts, timelines and scenarios, as well as advice from money gurus and even a little light relief in the form of clips from “The Daily Show.”

This American Life/NPR

The popular public radio show “This American Life,” working in conjunction with National Public Radio, produced a radio program called “The Giant Pool of Money” in May that still stands as one of the best comprehensive pieces on the roots of the housing crisis: “We explain it all to you. What does the housing crisis have to do with the turmoil on Wall Street? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s?”

If you can download this free podcast and spend an hour listening in the car or on your iPod, you’ll come away with a much better understanding of the underlying factors that gave rise to the crisis. There’s an accompanying daily blog, Planet Money , and the team recently recorded an update, “Another Frightening Show About the Economy.”

Wired

Wired magazine has created a Wiki — an online document that many people can edit — to help explain the crisis:

Most of us aren’t economists and aren’t expected to understand what exactly is going on on Wall Street, but we all have a pretty good sense that things aren’t going well and it’s bound to affect our economy and eventually our homes, if it hasn’t already. … So let’s get educated on the financial crisis before it’s too late. Here’s our syllabus.

The Wired page includes lessons from similar crises in the past, links to articles by economists and journalists, and questions and answers from readers using the micro-blogging service Twitter. It even promises to let you “learn from Warren Buffett.”

What sites do you find helpful in understanding the credit crisis? Leave your answer in the comments section.

On the face of it, China, which is relatively unscathed by the crisis, has a golden opportunity to exploit Western disarray and increase its financial and political penetration of the continent. Already there are signs that Africans are starting to look away from the West and towards other emerging markets, especially China, as they watch the banking chaos in the traditional capitalist markets.

This could have a lasting impact on Africa's perceptions of East and West as they see Asian financial structures surviving better than those in Europe and America.

China's economy is still robust, despite the turmoil elsewhere, with GDP growth this year expected to reach 8.5 to 9 percent. Its thirst for African commodities, especially oil, is unabated to fuel Beijing's rapid industrialisation drive. Western governments and aid groups accuse Beijing of turning a blind eye to misrule, corruption and human rights abuses as it invests in Africa, including in controversial countries like Sudan, whose Darfur region is suffering a deep humanitarian crisis. But many Africans welcome China's refusal to interfere in political issues, in contrast to Western attitudes.

Experts say it is questionable whether China has the capacity to get more deeply involved in Africa economically because of its existing huge exposure and the diversification of investment on the continent to include other emerging market countries like Brazil, India and Russia. Not to mention the huge petrodollar funds of Gulf states. They say that in any case economic contagion will reach China which has vital export links with the West. 

But will the spectacle of the Western capitalist system in disarray push African countries to look even more towards the East, finally breaking their strong ties with former colonial powers in Europe and with the United States. What do you think?

So is it time to break the taboos and ask: Does Pakistan's best hope of economic recovery lie in making peace with India?

President Asif Ali Zardari certainly seemed to think so when he told the Wall Street Journal in an interview last weekend that India was no threat to Pakistan and said that "there is no other economic survival for nations like us. We have to trade with our neighbours first."

India's Business Standard says in an editorial that Zardari is right to say India is no threat and that Pakistan needs to focus on reviving its economy. "The question, though, is not what President Zardari thinks about these issues, but whether the larger Pakistani establishment (including, most importantly, the army) shares his perspectives. At the moment, Mr Zardari seems to be running ahead of the pack," it says.

India too is beginning to worry about the impact on its own economy of the global financial crisis, as these articles in the Hindustan Times and the Economic Times suggest. So it might also welcome the advantages of higher regional trade.

A chance for peace?

"I am a Republican, but I do believe Barack Obama will be a much bigger supporter of clean tech and renewable energy than John McCain will," Khosla said at the Reuters Global Environment Summit in San Francisco. To see a video of the interview, click here.

Khosla stopped short of saying whom he would be casting a ballot for on November 4th, but added of McCain: "Unfortunately over the election cycle he's gotten very beholden to some of the traditional energy interests. "

Still, Khosla said renewable energy and climate change legislation was slowly garnering support from his party, too.

"A Democratic majority would be very good for renewable energy, but  it is a bipartisan issue -- there are many many Republicans who support it also," Khosla said. "I think we are headed in the right direction. Maybe too slowly for my liking, but I think we are heading in the right direction."

(Reporting by Ruben Ramirez)

The TED spread, or the difference between US Treasury bill and eurodollar interest rates, is an indicator of perceived credit risk in the general economy. US government Treasury bills are considered risk-free while eurodollar borrowing costs, measured by the London interbank offered rate (LIBOR), reflect the credit risk of lending to commercial banks.

When the TED spread increases it is a sign that lenders believe the risk of default on interbank loans is increasing. Interbank lenders therefore demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. When the risk of banks defaults is considered to be decreasing, the TED spread decreases. The TED spread fluctuates over time but has often remained within the range of 10 and 50 basis points (0.1% and 0.5%), at least until 2007. A rising TED spread often presages a downturn in the U.S. stock market, as it indicates that liquidity is being withdrawn.

- Clive McKeef

But the saga of the North Atlantic island of Iceland does not stop at its own rocky shores.

Riding a wave of cheap borrowing, Icelandic investors spread their interests far and wide, taking stakes in companies as diverse as New York department store Saks, Finnish insurer Sampo and English soccer club West Ham United.

Most famously Baugur, an investment group controlled by entrepreneur Jon Asgeir Johannesson bought up large swathes of Britain’s high street, from the Iceland frozen food chain (appropriately enough) and Hamleys toy store to House of Fraser department stores and fashion group Mosaic.

But what happens now? The cheap credit has dried up; two of Iceland’s biggest banks have been bailed out by the government; credit insurer Euler Hermes has stopped cover for suppliers to some of Baugur’s empire; and West Ham’s Icelandic owner Bjorgolfur Gudmundsson has already been hit by the collapse of team sponsor XL Leisure.

Gudmundsson chairs Icelandic bank Landsbanki, which has now stopped customers withdrawing money from its British internet bank icesave.

Will the hardy Icelanders weather the storm, or will they be forced to sell into a market where they may struggle to find buyers? A case of shop until you drop, perhaps.

In November 2006, Gudmundsson, Iceland’s second richest man, led an 85 million pound buyout of the east London club in November 2006, investing another 30.5 million pounds in December 2007.

Former Thai Prime Minister Thaksin Shinawatra sold his Manchester City football club to an Abu Dhabi-based company having gone into exile in London in August on corruption charges.

Still, Thaksin did make a fat profit.