When heads roll, they don't come any bigger than that of Chuck Prince. The former chairman and chief executive of the world's largest bank, Citigroup, now finds his top end lying unceremoniously in the same metaphorical - but extravagantly feather-bedded - basket already occupied by that of Merrill Lynch's Stan O'Neal.

However, the watching world has little time to indulge in a sustained bout of moral outrage. Prince and O'Neal won't be the last sacrifices in this financial crisis. If these two big banks couldn't tell, from one week to the next, how badly exposed they were to AAA-rated, mortgage-backed securities, now revealed as a new generation of financial junk, who else is harbouring a big heap of off-balance-sheet misery?

A Congress committee is predicting another two million foreclosures on existing sub-prime mortgages across America before the end of next year. That could mean two million families left homeless and at least £50bn of underlying value about to be shredded. Gloomier analysts put the true figure at several times that.

But between them Merrills and Citigroup have only owned up to write-downs of around £9bn. So where is the rest lurking? No-one really knows. And because the original debt has been packaged and repackaged, traded and traded again and again, in recent years, into supposedly rock-solid securities, the grounds for mutual suspicion and recrimination are glaringly obvious.

When markets get themselves this far out on a limb on questions of risk, no one is prepared to move an inch for fear of bringing the whole tree down. Prince neatly summed up the herd mentality which got the banking sector into this mess when he said: "As long as the music is playing you have to get up and dance."

But now that that tune has stopped, are bankers still dancing, already busily creating new ways of keeping the whole merry-go-round turning, creating fresh wheezes to repair balance sheets? Or has trust been so trashed by this sub-prime fiasco that the resultant credit crunch will be with us for some considerable time to come?

That is the biggest unknowable of all in this crisis. If, as now seems inevitable, risk is re-priced, lending conditions become more onerous, regulation intensifies and the allure of asset classes built on sand but holding out the promise of heady returns recedes, what will be the knock-on effects in the global economy?

Might the credit crunch of 2007, triggered by what one US Federal Reserve official has called a "Wild West" market in mortgage loans to those who could least afford them, do what the millennial tech bubble and the assault on the twin towers failed to do - bring large swathes of the global economy to a shuddering halt?

It is worth remembering that - while bank stocks all round the world have been taking a hammering in anticipation of the sharp reduction in profits Chancellor of the Exchequer Alistair Darling was warning about yesterday - other sectors of business have remained buoyant.

There are exceptions. Supermarket group J Sainsbury was, by far, the biggest faller of all on the FTSE yesterday, its shares down by around a fifth after its Qatari suitor pulled out of its planned bid.

That was blamed, at least in part, on the consequences of the credit crunch. Delta Two claimed it was finding it difficult to raise the money to bridge a £500m gap in its funding for the proposed deal. Other leveraged deals might find life difficult in the days and months ahead. And, as borrowing costs more, overall growth could suffer.

The latest forecasts, from the likes of Deloitte and PriceWaterhouseCoopers, are predicting UK growth next year of no more than 2%. How far growth actually slows here will depend, to some considerable extent, on what happens to demand in the housing market.

There are plenty of voices warning average prices are likely to fall next year, although one notable dissenter is PWC's John Hawksworth. He admits there is "clearly some risk" of them falling over the next three years. But these are mitigated by continuing housing supply constraints, leaving PWC's best estimate at a one-in-five chance of a fall.

One other imponderable is the future trend in UK interest rates. It seems increasingly clear that UK rates have already peaked in this cycle. However, given Bank of England Governor Mervyn King's warnings about the "moral hazard" of bailing out imprudent banks by a rapid easing of monetary conditions, cuts could still be some months away.

After two successive reductions, totalling 0.75%, in the United States, the Fed appears reluctant to go much further for fear of encouraging inflationary pressures. That reluctance could help King keep the Monetary Policy Committee here in check for a while yet.

Next week's Bank inflation report may offer more tangible clues. But Roger Bootle's forecast, for Deloitte, of UK rates back at 5% by the end of 2008 may not be too far off the mark.