Equity markets returned to their bear market lows and even went beyond last week, driven by a steady flow of bad news. The week started under the influence of Lloyds Banking Group's announcement the Friday before that the bank's recently acquired subsidiary, HBOS, expected to report a £10 billion pre-tax loss for 2008. This was followed by a report from Moody's highlighting concerns over the eastern European exposures of western European banks and then came the growing realisation that any rescue of GM and Chrysler by the US government was going to look virtually indistinguishable from entering into Chapter 11 proceedings.On Friday night (our time), talk of the need to nationalise US banks smashed the share prices of Bank of America and Citigroup. As a result the S&P/ASX200 finished the week at 3402 points, not far from its low of 3343 points seen in late January, and the Dow Jones Industrial index closed on Friday at a new low of 7366 points.Surprisingly though, there was no evidence of these latest negative events having any impact on systemic liquidity, with the TED spread and, locally, the spread between the three-month overnight index swap and bank bill rate, remaining virtually unchanged from the week before.Even more surprising was the lack of reaction seen in CDS indices. While there was some widening around mid-week, by the end of the week Europe's Main index and the CDX 11 in the US closed only modestly wider. The Aussie iTraxx showed a little more reaction, moving over 350 bps during the week.Could it be a positive sign that money and credit markets took the events of the week in their stride? Lloyds revealed that the HBOS loss came mostly from a £7 billion loss within the corporate banking division, resulting from construction and property exposures. This promptly led to rumours sweeping the markets of an imminent nationalisation of Lloyds and Royal Bank of Scotland. The UK government already holds more than 43 per cent of Lloyds and close to 70 per cent of RBS.As it was, the German government legislated on Wednesday to take over the Hypo Group and the reporting of further fourth-quarter losses by ING Groep N.V. of €3.7 billion, and by Commerzbank of €809 million, only aggravated the negative sentiment towards the European banking sector.Noting that eastern Europe had entered "a deep and long economic downturn" a report from Moody's highlighted the claims of many western European banks on eastern European institutions.Moody's went on to note that "…the Austrian banking system is most exposed, as Eastern Europe accounts for nearly half of that country's global bank claims. Italy's claims account for 27 per cent of the total (mostly concentrated in Poland and Croatia), whilst Scandinavian banks claim the vast majority of the Baltic States' banking systems."These exposures are concentrated in very few banking groups, principally: Raiffeisen; Erste Bank; Société Générale; UniCredit; and KBC. Then on Friday prominent economist, Nouriel Roubini, announced that the GFC is nowhere near an end and it is inevitable