By Greg Peel

The Dow closed down 198 points or 1.6% while the S&P lost 2.1% to 1234 and the Nasdaq fell 2.0%.

There were meant to be two legs to the quinella over last night and tonight. Tonight is supposed to bring the latest tricked up model of the definitive solution for Europe ? the one with the chrome plated grease nipples and double overhead twin cam door handles ? and last night was meant to bring not just an ECB rate cut (and preferably 50bps at that) but also confirmation that the ECB would continue to provide liquidity by purchasing distressed eurozone debt, particularly that of Spain and Italy, ahead of an eventual money printing exercise linked in with tonight's blueprint.

Instead, ECB president Mario Draghi cut by 25 basis points to 1.0% and suggested the ECB, as a matter of course, would not back further purchases of individual bonds. Instead he suggested European banks ? those holding the bulk of said debt ? must raise further capital.

Okay form an orderly line here all you people keen to invest in those European banks which will shortly go under if this charade plays out much longer. No pushing please.

According to the European Banking Authority the current aggregate capital shortfall among European banks is a cool E115bn, which is E8bn more than last estimated in October. Somehow methinks there might be a bit of a Catch-22 here ? Draghi wants the banks to recapitalise before the ECB is forced to bring out the big guns but investors are likely to shy away from those banks unless they know the ECB has their back. Again we are reminded that the bank-led recovery which began on Wall Street in 2009 coincided with QE1.

The response to Draghi's announcement was a major bounce in the risk indicator du jour (or should that be del giorno), being the yield on the Italian ten-year bond, to 6.5%. Selling of Italian and other PIIGS bonds was thus joined by selling in stocks, commodities, and particularly gold.

Gold is the direct victim of the ECB's reluctance to print, given the monetary inflation printing implies. It was down US$32.30 to US$1710.00/oz. The euro understandably took a tumble, sending the US dollar index up 0.5% to 78.79, and the Aussie has lost a cent to US$1.0197 with yesterday's weak employment number an additional impetus.

Base metals all lost 1-2% with the exception of nickel, which is marching to its own drummer at present, while Brent crude dropped US$1.42 to US$108.11/bbl and West Texas fell US$2.13 to US$98.36/bbl.

The SPI Overnight fell 67 points or 1.6%.

The flipside to more PIIGS bond selling is buying in those bonds still considered safe, and to date that still includes German bonds. UK bonds are also on the "good" list and the US ten-year yield has fallen back below 2%. All along the VIX volatility index has told the tale, refusing to fall much further than about 27 even as the "hope rally" has played out to now. And with due cause ? it's back over 30 again.

Things were looking rather dire around 3pm on Wall Street as the Dow reached over 180 points down, and looked like it might gain momentum into the close as the "hopium" began to wear off, until a pre-EU summit announcement was made that leaders are "prepared to do all that it takes" to preserve the integrity of the union. This was enough to stem the tide and bring some speculative buying back into the market, halving that loss.

Remind me: Have I heard that said before?

They might be prepared to make as yet unsubstantiated motherhood statements, but behind the scenes it seems some of the most recent rescue ideas are not going to get over the line. There will not be concurrent EFSF and ESM funds running, the ESM will not be granted a banking licence so it can be fed fresh euros from the ECB, and the "close fiscal union" looks like being watered down from Day One. Budget limits may be imposed on eurozone members but it appears there is no legal way (and not unanimous support) to centrally manage those budgets. Instead it is likely that limits will be imposed and members will be obliged to stick to them, lest they be taken out to the tool shed and hit with a big stick for their disobedience.

Which ? and once again any eurozone experts can correct me if I'm wrong ? is exactly the way the treaty works now! There were always debt-to-GDP limits placed on eurozone members, which were blithely ignored ? not just by the members themselves but by the central EU authorities. That's how we got into this mess in the first place. Of all the eurozone members, only Luxembourg came anywhere close to being inside its limit prior to the GFC. Even Germany was over, and as we know Greece simply made a mockery of the rules, with the other little piggies falling into line behind.

So after a brief attempt at a rebound, Wall Street faded away to the close once more. Funnily enough, the majority of people out there seem to believe that Europe will eventually do "whatever it takes" even if it means a continuation of the stumbling and bumbling path to get there. The mega-rally will come, they say. Others, of course, foresee the disintegration of the eurozone as we know it. Perhaps into first and second divisions, or perhaps with the recalcitrant peripherals jettisoned, or maybe even Germany will simply go it alone.

Yes -- the mega-rally will come if the European problem is resolved. Will it be resolved? At the risk of using a now hackneyed clich