Earlier this week the European Central Bank (ECB) injected MORE than $500 billion into the European banking system. This is, far and away, the largest single liquidity injection any central bank anywhere has ever made, insofar as we know. According to news accounts, it is more than 5x as much as the massive liquidity injection made by the ECB at the onset of the subprime crisis last August.
We believe that this action speaks VOLUMES. What does it tell us -- the fact that the ECB (a very conservative central bank, by the way) found it necessary to flood the banking system with this unprecedented sum of money?
What does it say about the success/failure of ECB/Federal Reserve efforts to contain and reverse the crisis over the past 4 months if the ECB NOW finds it necessary to supply 5x the cash it supplied at the outset of the crisis? The facts, we think, speak for themselves.
One crucially important component fuelling the acceleration of the liquidity crisis in both the European and American banking systems has, of course, been the behavior of the FED and the ECB. These central banks make huge emergency liquidity injections with one hand, and then remove them with the other. This type of shell game may be fooling central-bank groupies in the media and in financial circles, but it is not fooling major lenders, who know precisely HOW TERRIBLE their liquidity position is.
We doubt that the purchases of sizable pieces of major individual financial institutions by vast liquidity pools from the Middle East and Asia -- at usurious rates which will ultimately weaken the institutions desperate for cash at any price HERE AND NOW -- will prove sufficient. As we have been saying since August, YE OLDE BAILOUT from the American and European taxpayer is an inevitability, sooner rather than later.
As for the FED and the ECB, let us simply say that these folk have yet to learn that you cannot have your cake and eat it too. Simply put, they cannot inject liquidity and then retract it, and expect that this sly maneuver will provide even the most minimal assuagement to the banking system's cash crunch.
