Hard landing instances in many economies could simply lead to financial and economic distresses and this cannot be resolved fully with liquidity injections alone by central bankers as lenders of last resort.

The current credit crisis has been lingering for more than a year since August 9, 2007. This symptom was noticed when BNP Paribas halted withdrawals from three of its funds that had invested in subprime mortgages. Bear Stearns collapse later highlighted the magnitude of the problem to the regulator and the Stock exchanges alike through similar firms' excessive exposure to mortgage markets triggered by a steep slump, especially during June 2007 in US real estate. Now, bank writedowns are estimated at $476 bn by the International Institute of Finance. Though this is less than the $600 bn loss of US savings and loans crisis of the early 1990s, about $1,600 bn have been cut from the global market capitalization of banks. The financial crisis is spreading from subprime borrowers, with evidence mounting that more affluent people are failing to pay mortgages and credit card balances, and that spreads have remained oblivious to the massive Fed cuts. Coexistence of investment and core banking groups has come under debate now. The crisis attained a global scale owing to persistent US trade deficits and widening corporate credit spreads on not only liquidity crunch, but mainly due to the issues relating serious credit/solvency problems, adversely impacting the corporate system.

According to Martin Wolf of financial times,"Two storms are buffeting the world economy: an inflationary commodity-price storm and a deflationary financial one." Nine banks have failed so far this year, owing to shoddy lending to homeowners and developers. `Pretty dismal' was the frank view expressed by Sheila Bair, the head of US Federal Deposit Insurance corporation (FDIC), on seeing the rise in the number of banks on the danger list—from 90 to 117. Liquidity is what the world's financial network is lacking at the moment. Stephen King, an economist at HSBC, points out that the financial crises of the 1990s also prolonged from the savings and loan collapses in US through the Swedish banking rescues to the extremes of Japan's debt deflation. If banks are unable or unwilling to lend, then monetary policy will have its own limitations. The liquidity crisis was the result of valuation related issues regarding several types of securities used as collateral for outstanding loans. One of the securities in question is the CDO or Collateralized Debt Obligation. Risk aversion, measured by spreads on corporate debt, fell sharply after the sale of Bear Stearns in March and the resurfacing of systemic meltdown. According to Torsten Slok, an economist at Deutsche bank, prices of junk bonds and home equity loans imply a default rate consistent with unemployment of around 20%. Banking liquidity injections were carried out by the Federal Reserve through several repo operations. These repos are nothing but temporary swaps of quality collateral for cash as a defense against further liquidity crunches.

Analyst Magazine, Liquidity Crunch, Credit Crisis, Subprime Mortgages, Stock Exchanges, Global Market Capitalization, Core Banking Groups, Federal Deposit Insurance Corporation, FDIC, Collateralized Debt Obligation, CDO, Banking Liquidity Injections, Policy Environments, Financial Markets, Commercial Mortgage-Backed Securities, CMBS, Credit Default Swaps Market, CDS.