Markets have been given a new lease of life through additional liquidity poured in by central banks around the world in the recent past. The European Central Bank, the Bank of England, the US Federal Reserve and other major central banks are fighting tooth and nail against the current financial fiasco. Markets have been rocked by news of problems in banks and funds exposed to risky investments in US asset-backed and mortgage markets. Asian markets are not waterproof, meaning sooner or later they will yield all the gains from last year. The major central banks are creating a bailout plan for the anticipated money market turmoil. They are providing market liquidity at the last minute to delay the nosedive and there is still a long way to go from the basket of policy makers.

Stock markets have crashed remarkably around the world in the recent past. Hong Kong’s HangSeng has gone well below 20,000 levels, the National Stock Exchange of India closed below psychological 4,000 levels on Friday, and the Dow Jones hovers around the magic 10,000 levels. Japan’s Nikkei, China’s Shanghai, France’s CAC, Germany’s DAX, the UK’s FTSE and India’s BSE’s SENSENX destroyed almost all of last year’s gains. What we are seeing is only the tip of the iceberg: the great collapse may occur if a firm decision has not been made in the coming days to avoid the coming catastrophe. Major reforms are inevitable and need an hour in the financial sector. The fire in the banking and investment sector must be put out at the initial stage, otherwise the whole world must prepare to pay the damage. At present, it is largely confined to the United States, the world’s largest economy, but this hell is ready to engulf vulnerable emerging economies if the situation prevails in the near future.

Banking and investment giants like Lehman Brothers Holdings (already filed for Chapter 11), Merrill Lynch, American International Group, Goldman Sachs, Wachovia, are all lining up to be bailed out. The main concern is whether risk socialization and reward privatization will work in the age of the free economy or, once again, this artifact will work. At present, it is very difficult to think about ethics because the situation is too bleak, and it must be given a new life immediately, otherwise the situation will become too harsh to say angle.

The Bank of Japan injected a total of 1.5 trillion yen ($14 billion) into the Tokyo money market a week earlier. The Reserve Bank of Australia had injected 3.57 billion Australian dollars (4.4 billion US dollars; 3.3 billion euros). The Bank of Canada had injected a total of T$2.305 billion into the markets to improve liquidity, its largest such intervention since February 2000. The Fed’s dramatic $105 billion liquidity shot in the previous week (before market) was enough to prevent key institutional accounts from following up on sell orders and starting a cash run that could have brought large swaths of the US economy to a standstill. Paulson knew that the $105 billion injection was not a real solution. A broader and more radical response was needed.

Currently, the $700 billion bailout plan is in limbo, but the US government is hell-bent on breaking the impasse and equally optimistic to get it through on Capitol Hill. But at the same time, economists are skeptical about a bailout that could lead to catastrophe in the long run because this move by Capitol Hill could do significant damage to taxpayer sentiment. Policy makers are already badly weakened by inflationary pressure, slow growth rate, rising consumer price index and declining exports. The estimate of the GDP growth rate for the second quarter is revised downwards to 2.8% from the previous 3.3%. It’s not good for pundits to link the status quo to the fiasco of 1929. Henry Paulson and Ben Bernanke failed to convince Congress that the bailout will do much for the tottering financial sector. Senators are skeptical about the results of the bailout as buying bad assets may not do much for the financial sector in the long run and the situation may repeat itself sooner or later.

Commodities such as gold and silver are attracting investment as the status quo does not bode well for the dollar king and inflation is skyrocketing; Going forward, the world is turning to precious metals as a hedge against the dollar, which will likely adjust its recent gains south. The major world currencies viz. Euro, GBP, Japanese Yen, etc. already adjusted and ready to move higher in the near future against the dollar. The dollar index, a measure against the basket of currencies, fell sharply from 80.37 to 75.89 before a quick recovery to 77.25 last week. That has helped push up the prices of US dollar-denominated commodities. Gold posted the biggest single day gain a fortnight ago after two and a half decades. And silver and other commodities also moved along with gold.

Now the question arises whether pumping money into the markets will give a new life to the financial markets.

As I mentioned earlier, billions of dollars have already been poured into the markets around the world, but the markets are still thirsty and are expecting a big push from the US government of $700 billion in the next few days. If the bailout goes through the White House and new money starts flowing into the markets, it will certainly change market sentiment around the world and, at least in the short term, may completely stop the anticipated downtrend. Not only the government but all financial institutions need to come together and come up with the model most needed for long-term stability. This will put the markets on the path of sustainability and restore investor confidence.

Mutual funds, hedge funds, hedge funds, financial institutions must not go unpunished for their recklessness under the guise of their greatness and public image, this will undermine the long-term stability of the system and also send the wrong message Worldwide. Everyone knows that most diseases give enough symptoms before the fatal stage and must be diagnosed at an early stage. Therefore, just pouring money into the markets is not enough for bailout, the regulatory authorities involved must have strict regulations to prevent such financial crises.

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