Just look at what the central banks and governments have thrown at the markets: a deluge of liquidity, the acceptance of dodgy assets as collateral, a bailout plan in the US and Spain, bank nationalizations in the UK, US and Europe, rate cuts in Australia and China—and yet, the markets have failed to respond.

The markets, never satisfied, wanted more and there was a chorus calling for coordinated rate cuts. That’s unlikely to do much more than improve sentiment, because the problem lies not in the price of money, but in the disinclination of banks to lend.

Until the banking system is restored to a semblance of health, either through nationalization or wholesale guarantees, the problem will remain.

At the time of writing, the coordinated rate cuts had fixed neither the credit markets nor the European stock markets. The Footsie was down 2%, while France’s CAC 40 and Germany’s DAX were down 3% each.

Also See Panic across assets and markets (Graphic)

The key to steadying the stock markets lies in the unlocking of frozen credit markets. Till that happens, stock markets in developed markets will remain under pressure which, in turn, will lead to sell-offs in emerging markets. The problem is thatthe central banks are using up their ammunition really fast. At this rate, the market will be calling for central banks to buy equities next.