  We review the evidence that the erratic dynamics of markets is to a large
extent of endogenous origin, i.e. determined by the trading activity itself and
not due to the rational processing of exogenous news. In order to understand
why and how prices move, the joint fluctuations of order flow and liquidity -
and the way these impact prices - become the key ingredients. Impact is
necessary for private information to be reflected in prices, but by the same
token, random fluctuations in order flow necessarily contribute to the
volatility of markets. Our thesis is that the latter contribution is in fact
dominant, resulting in a decoupling between prices and fundamental values, at
least on short to medium time scales. We argue that markets operate in a regime
of vanishing revealed liquidity, but large latent liquidity, which would
explain their hyper-sensitivity to fluctuations. More precisely, we identify a
dangerous feedback loop between bid-ask spread and volatility that may lead to
micro-liquidity crises and price jumps. We discuss several other unstable
feedback loops that should be relevant to account for market crises: imitation,
unwarranted quantitative models, pro-cyclical regulation, etc.
