In a blatant attempt to stave off another European bank failure, the U.S Federal reserve and 6 other western central banks joined forces to cut the cost of emergency U.S. dollar lending rates and swap rates for European banks. It is rumoured that a large French banks was going to be declaring bankruptcy without this assistance.
The system is so fragile and no matter what the Fed does, it will not solve the European debt crisis unless they are willing to do what the ECB will not do, print U.S dollars and keep lending to Europe.
This action sent stock prices higher as investors likened the move to another round of easing or perhaps setting the tables for QE3. Nothing short of default or continued austerity will right this debt bomb and investors will soon awaken to this reality as the global economy heads into recession. Europe is in a depression, China is in a recession and the U.S will be there soon enough.
In the meantime, investors prefer to delude themselves into to thinking all is well. It is not.