The volatility in the markets now reflects a whole new set of financial risks, says Harvard Business School business administration lecturer Mohamed El-Erian.

He argues that the markets have become so sophisticated and they now have a complexity beyond the expertise of fund managers and ratings agencies. It's a whole new word of risk, he says, and what's needed are three steps: more co-operation between the supervisory bodies, getting the ratings agencies to improve their modelling of derivatives and investors showing better Risk management capabilities. If it's left unchecked, he says, the risks will increase.

That's a bit like saying, however, that the only way to become a really good driver is to drive better.

The real problem is that the volatility reflects the biggest strength and the biggest weakness of the US financial system.

The biggest strength is the system where loans are funded by millions of investors across the planet is a great way of spreading risk. No one investor would have too much exposure if something goes wrong.

But that's the flaw too. The risk is spread so wide that no-one really knows where it starts and ends, and that creates uncertainty. Markets are really good at pricing risk, they are absolutely hopeless at pricing uncertainty.

It all came out of the the crisis in the late 1980s and early 1990s when bankers made wild loans in the hope of extracting huge profits and ended up getting in trouble when the loans went bad. Out of this, arose the idea that instead of relying on a single institutions, borrowers and lenders could instead to turn to a global credit market. In other words, the market would look after itself and provide its own protections.

That's how it's supposed to work in theory. The trouble is you don't actually get rid of the risk, you just shift it. It's still there.

Unfortunately, what we have been left with is a complete mess and no-one knows where the bottom is.