There are many factors for the selloff: prices were overvalued, there was easy money pumped into finance via Central Banks, but the main one was that Major Banking Houses needed liquidity. Major Banks are insolvent due to toxic collateral from fraudulent loans. These banks needed needed cash, and fast.
The prop desks of the Major banks, from Europe to America, had to sell stakes in equities among other things to have enough assets to balance their balance sheets. This was the major cause of the correction. Some banks, like Bank of America, were forced to liquidate their portfolios. Some, like JP Morgan, were shorting the market knowing that this move was going to happen. So while Bank of America sold their equity positions in Exxon and Hess, JP Morgan was selling calls and using the Special Petroleum Release to locate their shorts.
This caused a huge downward move, and since JPM was going to benefit, the President's Working Group did not step in. I am sure JPM floated some Fed funds loans to Bank of America in exchange for the market making, too.
So now that the cascade has happened, the questions are, where do we go from here? Does the Federal Reserve step in and monetize the debt, so that Primary Dealers can flip their bonds and use the cash to get back into the corporate market place? Does the President's Working Group prop up the trades while the scheme begins anew? Will the Federal Reserves first move be to loan gold out, giving them cash to marginalize assets 100:1 by using fractional reserve lending?
All I know is that a big week lies in store for the markets.