IS IT really over? In the middle of March investors were worried that the financial system was going to hell in a handcart. Analysts competed to produce the highest possible forecast for losses from the credit crunch. Just six weeks later, everything seems a lot calmer. Stockmarkets have stabilised and corporate credit spreads (the excess interest rates paid by risky borrowers) have come down sharply. Gold is cheaper. Bankers talk about having put the worst behind them. This week the Bank of England's twice-yearly Financial Stability Report was cautiously optimistic (see article) and America's Federal Reserve was relaxed enough to cut the pace of its monetary easing (see article). Rates may even have reached the bottom.

Optimists can point to one big relief. When the Fed helped JPMorgan Chase to rescue Bear Stearns, it sent a signal to the markets—a kind of “No Bank Left Behind” Act. If the Fed was willing to save an investment bank, without any retail depositors, then the system would not be brought down by a “plumbing problem”, such as the collapse of a counterparty in the derivatives market. The boost to confidence has helped banks to repair their balance sheets by raising large sums from both shareholders and the bond markets. Maybe financial Armageddon had been avoided.

A sea of troubles

Maybe. But the fight ahead still looks bloody. Although the system as a whole is safer, plenty of problems remain for particular banks. In the money markets, the banks are still having to pay a high margin over official rates to borrow short-term money, despite the ingenious efforts of the Bank of England, European Central Bank and America's Fed. Investors are still worried that banks could get into trouble. There is probably more troubling news to come on write-offs; declared losses so far are well short of the $945 billion that the IMF estimated were the global losses from the crisis, much of it outside the banking system.

The malaise that started the crisis—the American housing market—is still getting worse. The month-on-month decline in the Case-Shiller index of house prices in 20 large cities is accelerating; on the latest reckoning, it was down by 12.7% over the 12 months to February 29th. As the decline continues, more homeowners will default on their loans.

And losses are now emerging in areas other than housing. After a long period with scarcely any bond defaults by companies, there have been 21 failures this year, according to Standard & Poor's, a rating agency; some 122 issuers, with debt of around $102 billion, are deemed vulnerable to default. Ominously, corporate debt is the shaky foundation for trillions of dollars of derivative contracts.

Consumers round the world are grappling with higher food and fuel prices. British house prices are now showing annual declines. Europe's economies seem to be deteriorating. In April the Belgian business confidence indicator, a good gauge of the continent's conditions, suffered the biggest decline in its 28-year history. Commercial property looks vulnerable, as do some emerging markets, especially in central and eastern Europe. And things are shaky in Japan, where industrial production declined more than 3% in the latest month.

Imagine that you had fallen asleep last July and that you had been spared the dread words “credit crunch” and “Bear Stearns”. On waking today, you would be astonished at how low American interest rates had fallen (especially in the light of headline inflation). But you would still be alarmed at the state of housing markets, the prospects for consumer spending and the trend in forecasts of economic growth. You would not assume that the worst was over. Nor should investors, just because they have had to live through it all.