The activities of financial markets are often irrational. Prices go up for no apparent reason and then suddenly the mood changes. What's worrying about the latest spasm that has convulsed bourses in Europe, Asia and North America is that the sell-off is grounded in real and ever-more pressing concerns. Make no mistake, something serious is going on here.

That something can be divided into three parts. The first cause for anxiety is the global economy, and in particular the United States. The report released on Thursday by the Philadelphia Federal Reserve covers only a small part of the Eastern US but it has a good track record for charting the ups and downs of the world's biggest economy. The Philly Fed's barometer has just plunged deep into recession territory.

There are also simultaneous slowdowns going on in the rest of the world. Europe's economy has slowed to stall speed, the UK is still operating way below its pre-recession level and activity has come off the boil in China, even though to western eyes growth still looks amazingly strong in China.

Two and a half years ago, financial markets rallied strongly on the assumption that the worst of the slump was over. There was relief that Great Depression 2 had been avoided. Now the talk is over a double-dip recession.

Concern number one has re-ignited fears about the health of the global financial system. Again, markets have been operating for the past couple of years on the assumption that large dollops of financial help from the taxpayer and a return to growth have made the global banking system immune from a fresh collapse. This always looked questionable, and now that activity is slowing markets suspect that some banks may go under. In the 1990s, the Japanese government prevented its financial system from collapse but only at the expense of creating zombie banks, neither alive nor dead but kept functioning thanks to the largesse of the state. The reason the sell-off in financial stocks has been more pronounced than the fall in stock markets as a whole is that investors believe Europe and North America now have their own zombie banks.

Reports that US regulators are taking a close interest in European banks and comments from Sweden's chief financial regulator that it wouldn't take much for European interbank markets to freeze only serve to bring back memories of the long descent from credit crunch in August 2007 to the collapse of Lehman Brothers in September 2008.

At least then, though, governments were in a position to ride to the rescue. Today, governments are seen not as the solution but as part of the problem. The debt burden accumulated by the banks was, in effect, nationalised during the crisis. It was hoped this would prove temporary, but the persistence of weak growth means that a private debt crisis has now become a sovereign debt crisis. What's more, the markets sense that policymakers have run out of bullets to fire. They can't cut official interest rates, they find it hard to justify more quantitative easing when inflation is at current levels and almost every Western government is currently trying to cut its budget deficit.

Put all that together and you get the full Japanese package: weak growth, weak banks, weak policy response. That is not a good recipe for shares. Today Tokyo's Nikkei market is at less than 25% of its level at the peak of the stock market boom in the late 1980s.