Bank markets are frozen (and notwithstanding articles that pretend it's not a big deal, it IS a big deal, as I discuss here) and carried over from day to day by the central banks, which are effectively the only lenders to banks, apart from depositors. It has gotten to the point where banks have more cash on their hands than they need, but refuse to use it for anything.

1. This can last for a while (the central banks can roll over their loans on a daily basis for as long as they want), but it's clearly not sustainable in the long term, and will soon have very real impacts on the economy, as loans become increasingly restricted;

2. the $700 billion from the Paulson Plan will go in that pile of hoarded cash, but will not change behaviors, becasue nobody is sure that that amount is enough to plug the holes in banks' blanes sheets, and, givne the prevailing lack of trust in the market, nobody will take any risk to bet that it might be enough.

So we'll end up with cash-rich but potentially insolvent banks not lending money. A rather unexpected outcome, to say the least... and not an acceptable one.

At this point, I don't see any other solution than the de facto nationalisation of the whole banking sector to put it back in a position to actually make loans.

And my bet is that this could very well happen before the election...