The bursting of the credit bubble effectively means that the banks are being forced to sell assets to cover the losses being incurred. This has the effect of delveraging their huge derivatives positions i.e. liquidating / reducing exposure. The problem the banks are facing is that the derivatives products are highly complex and illiquid, and hence the credit freeze as the banks barely know their own exposure let alone that of banks seeking to borrow on the inter bank money market, hence any cash the banks have is being hoarded in advance of further losses as giant holes are blown in the valuation of the derivatives such as collateral debt obligations.

Each and every quarter the banks announce further escalating losses, each time accompanied by public assurance's that the write down will be enough to cover future losses and thus the financial situation will improve hence forth only to be followed by further cash calls, capital injections and demands for government bailouts. Hence the consquences for the rapid abandonment of fiscal responsibility amongst panicking governments that have let loose their printing presses as the only answer towards attempt at counteracting the credit slump.