The current market jitters are centered on disturbances in the world's credit markets. Worries about the viability of sub-prime mortgage lending have spread around the financial system, and the central banks have been forced to pump in billions of dollars to oil the wheels of lending.

But what happened in previous financial crises, and what are the lessons for today?
There have been a growing number of financial crises in the world, according to the International Monetary Fund (IMF).
Among the key lessons of previous major financial crises are:
Globalization has increased the frequency and spread of financial crises, but not necessarily their severity
Early intervention by central banks is more effective in limiting their spread than later moves
It is difficult to tell at the time whether a financial crisis will have broader economic consequences
Regulators often cannot keep up with the pace of financial innovation that may trigger a crisis.
------------------------------ The dot.com crash, 2000
During the late 1990s, stock markets became beguiled by the rise of Internet companies such as Amazon and AOL, which seemed to be ushering in a new era for the economy.
Their shares soared when they listed on the Nasdaq stock market, despite that fact that few of the firms actually made a profit.
The boom peaked when Internet service provider AOL bought traditional media company Time Warner for nearly $200b in January 2000.
But in March 2000, the bubble burst, and the technology-weighted Nasdaq index fell by 78% by October 2002.
The crash had wider repercussions, with business investment falling and the U.S. economy slowing in the following year, a process exacerbated by the 9/11 attacks, which led to the temporary closure of the financial markets.
But the Federal Reserve, the U.S. central bank, cut interest rates throughout 2001, gradually lowering rates from 6.25% to 1% to stimulate economic growth.
-------------------- Long-term capital management, 1998
The collapse of hedge fund Long-Term Capital Market (LTCM) occurred during the final stage of the world financial crisis that began in Asia in 1997 and spread to Russia and Brazil in 1998.
LTCM was a hedge fund set up by Nobel Prize winners Myron Scholes and Robert Merton to trade bonds. The professors believed that in the long run, the interest rates on different government bonds would converge, and the hedge fund traded on the small differences in the rates.
But when Russia defaulted on its government bonds in August 1998, investors fled from other government paper to the safe haven of U.S. Treasury bonds, and interest rate differences between bonds increased sharply.
LTCM, which had borrowed a lot of money from other companies, stood to lose billions of dollars - and in order to liquidate its positions it would have to sell Treasury bonds, plunging the U.S. credit markets into turmoil and forcing up interest rates.
So the Fed decided that a rescue was needed. It called together the leading U.S. banks, many of whom had invested in LTCM, and persuaded them to put in $3.65b to save the firm from imminent collapse.
The Fed itself made an emergency rate cut in October 1998 and markets soon returned to stability. LTCM itself was liquidated in 2000.
------------------- The crash of 1987
U.S. stock markets suffered their largest peacetime one-day fall yet on 19 October 1987, when the Dow Jones Industrial Average index of shares in leading U.S. companies dropped 22% and European and Japanese markets followed suit.
The losses were triggered by the widespread belief that insider trading and company takeovers on borrowed money were dominating the markets, while the U.S. economy was entering into an economic slowdown.
There were also worries about the value of the U.S. dollar, which had been declining on international markets.
These fears grew when Germany raised a key interest rate, boosting the value of its currency.
Newly-introduced computerized trading systems exacerbated the stock market declines, as sell orders were executed automatically.
Concerns that major banks might go bust led the Fed and other major central banks to lower interest rates sharply.
""Circuit-breakers"" were also introduced to limit program trading and allow the authorities to suspend all trades for short periods.
The crash seemed to have little direct economic effect and stock markets soon recovered. But the lower interest rates, especially in the UK, may have contributed to the housing market bubble of 1988-89 and to the pressures on the pound sterling which led to the devaluation of 1992.
The crash also showed that global stock markets were now closely linked, and changes in economic policy in one country could affect markets around the world. Laws on insider trading were also tightened up in the U.S. and UK.
(Source: BBC)
(To be contd.)