By Greg Peel

The Dow fell 170 points or 1.5% while the S&P dropped 1.5% to 1159 and the Nasdaq lost 2.0%.

Hate to say it, but I've been saying it all week ? no news out of Europe does not mean good news. Lack of developments across the pond has allowed Wall Street this week to focus on the now hackneyed subject of whether to QE or not to QE and one might argue that after a positive couple of sessions, last night was an opportunity to square up ahead of Jackson Hole. But Europe has not gone away.

The world stopped worrying about Greece mid-year and started worrying about Spain and Italy, but the reality is the European Financial Stability Fund tacitly agreed upon back then has never been ratified. It ran into a bit of a roadblock back in July when the minority (19%) True Finn party, which is anti-eurozone, forced the Finnish government to insist upon cash collateral from Greece in return for Finland's EFSF contribution.

What this effectively would mean is that some amount of the funds handed over by other eurozone members, particularly Germany and France, would go straight to Finland for safe keeping. A lot of grumbling followed, but the Finnish deal was reluctantly given the nod in principle. That is until Austria kicked up a fuss, and said it was against any collateral deals but if Finland was getting collateral, then Austria would need some too. Then the Netherlands piped up in agreement, as did economic powerhouses Slovenia and Slovakia.

You can see where this is heading, can't you? Oh yes, we'll all put funds into the EFSF, but we all want collateral in return, say, of the amount we put in. Call me old fashioned but I think I spot a flaw in the logic.

We won't be able to find out for a while what might happen to the EFSF, given Germany has suggested it may call a postponement of further discussions. Why? The Pope is coming to Germany. Oh well, fair enough.

Prayer might be all the eurozone has left.

In the meantime, the short-selling ban on European bank stocks put in place a fortnight ago is due to expire, but talk now is of extending it. This talk has financial markets furious. So what do you do when you can't sell European bank stocks? Well, you can sell US bank stocks as a proxy (this has been happening ever since the ban was announced) or you can sell futures as a proxy for the stock market in general. And that's exactly what someone did last night. A huge sell order hit the German DAX futures, and at one point the physical DAX fell 4%. It recovered to be down only 1.7%, but the whole episode was enough to spook Wall Street.

Funny, therefore, that Warren Buffet should choose last night to announce Berkshire Hathaway had bought US$5bn of newly created preference shares in the struggling Bank of America, at what analysts suggest is a substantial cost not to Buffet, but to BofA. Prefs are a form of hybrid debt, and Buffet stands to collect US$3bn in coupon payments over the next ten years irrespective of the share price movement. The announcement came a day after the CEO of BofA appeared on CNBC and insisted the bank was not looking to, and did not need to, raise fresh capital.

The news hit before the opening bell and provided Wall Street with a brief moment of strength, before macro factors took over. The other announcement of note, made after the close on Wednesday ? that Steve Jobs was resigning as head of Apple ? proved a fizzer, with Apple shares down less than the Nasdaq by the closing bell. BofA shares jumped 25% on the open (they're worth about tuppence-ha'penny), but settled back to be up only about 7%.

If European shenanigans were not enough to send Wall Street south last night, or squaring up ahead of Jackson Hole, another jump in the US weekly new jobless was enough to give stocks a downward shove as well.

"Square-up" seemed to be the trade of the day across all other markets too. Base metals rallied 1-2% as stocks fell, which was attributed to short covering. After falling US$150 in two days, gold found some support and rebounded US$20.60 to US$1771.90/oz. The US dollar index rose 0.3% to 74.24 and the Aussie fell 0.4% to US$1.0430.

The oil market is closely watching Hurricane Irene as well as being conservative ahead of tonight. Brent rose US47c to US$110.62/bbl and West Texas rose US14c to US$85.30/bbl. Irene is set to hit the US eastern seaboard and not the Gulf oil rigs.

With talk that the Fed's new tactic might be to swap short-end bonds in its balance sheet for long-end bonds, the US Treasury's auction of seven-years last night again saw another record low settlement yield. Traders were actually expecting lower than 1.58%, but foreign central banks bought 52% compared to a 40% running average. The benchmark ten-year yield fell a couple of bips to 2.22%.

The SPI Overnight fell 49 points or 1.1%.

There's no more I can say about Jackson Hole that I or anybody else hasn't already said, other than if you're really keen tune into your favourite business channel at midnight tonight (Eastern). And don't forget that Jackson Hole has rather drawn attention away from the fact the first revision of US June quarter GDP will be released tonight as well.

Local result season highlights today include Lend Lease ((LLC)) and Perpetual ((PPT)). RBA governor Glenn Stevens will provide the House of Ill Repute...sorry, the House of Representatives with a regular update which they won't understand. Pretty devious, that RBA, if you believe the unions. Gotta blame someone to get your face on the camera.

I'll be appearing on Sky Business today at 2pm.