Portfolio.com: E.C.B. Pumps in $500 Billion - by Jeffry Cane

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E.C.B. Pumps in $500 Billion - by Jeffry Cane

The European Central Bank yesterday allocated more than $500 billion in euros to banks at below-market interest rates. Banks with sufficient collateral submitted bids at interest rates as low as 4.2 percent.But the huge additional infusion of cash by the E.C.B. suggests that the coordinated action by itself might be insufficient to stabilize credit markets. "The operation is highly unusual and heterodox; and while getting creative in dealing with liquidity crunches may be appropriate, this action signals some desperation on the part of the E.C.B.," says Nouriel Roubini on his blog. The E.C.B., he notes, is the only Group of Seven central bank other than the Bank of Japan that has not eased on interest rates.

"This is basically Father Christmas to those who have access," Erik Nielsen, an economist at Goldman Sachs, told the Financial Times. "They are bailing out people who have not really adjusted their balance sheets to the new reality." Yves Smith at the Naked Capitalism blog notes: "Markets are right to be concerned about recession risks, but there is an awful lot of whining mixed in here. After all, most traders' year-end bonuses stand to benefit a lot from an even softer Fed policy stance. The markets were not satisfied with one dessert; they wanted two."