The big black hole
Banks globally seem to have become black holes for cash injections. The latest wave in the cascade of cash injections is England's plan to inject £39 billion into select financial institutions. RBS, HBOS and Lloyds TSB all stand to receive their share of this cash and guarantee their liquidity; in addition the UK government stands to end up with a lion's share of RBS shares.
This plan is nothing compared to the US $700 billion plus bail-out, but still adds on to the ever-growing list of cash injections into the financial system. The Fed and European Central Bank have been continuously supplying funds to the system, but somehow increasing amounts seem to be required on a continuous basis. Where are all these floods of money going?
As the liquidity of the financial system has frozen over, banks are constantly in dire need of recapitalizing to meet their liabilities. As their business models are built to rely on ample availability of cheap credit, these banks are now struggling to find alternative sources of capital. Credit has become so expensive or hard to obtain that the lenders of ultimate resource, central banks and governments, are being forced to keep the system afloat. How long this frenzy of lending of ultimate resort can be sustained is a different matter altogether.
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