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On Tuesday evening Standard & Poor’s hit the big banks below the belt, as reported by Reuters, while the timing was questioned due to the current market condition.

Standard & Poor's cut its ratings on 15 big banks such as Bank of America Corp (NYSE:BAC) and Morgan Stanley (NYSE:MS) on Tuesday, as it seeks to give more insight into its methods and repair its reputation after the credit crisis. While the downgrades were driven by a revision of the agency's internal models and not because of a change in the banks, they will have a real impact on funding costs for the sector, already on edge because of Europe's debt crisis.

That was the attack. Interestingly enough, banking stocks were already selling off before the announcement. Then, this morning, the counter-attack was delivered by the major central banks, according to the Reuters’ article “Central banks act as eurozone crisis rages.”

The world's major central banks acted jointly on Wednesday to provide cheaper dollar liquidity to starved European banks facing a credit crunch as the eurozone's sovereign debt crisis threatened to bring financial disaster. The surprise emergency move by the U.S. Federal Reserve, the European Central Bank, the Bank of Japan and the central banks of Britain, Canada and Switzerland recalled coordinated action to steady global markets in the 2008 financial crisis.

And the markets took off. Much has been written about economic conditions, debt concerns and Santa rallies, but one thing is certain regarding the markets, especially short-term: It’s a war zone where risk can be miscalculated from one second to the next, and the clarity that exists regarding the end game will continue to be clouded by the smog generated by “surprise emergency” measures.

Two years into Europe's debt crisis, investors are fleeing the eurozone bond market, European banks are dumping government debt, south European banks are bleeding deposits and a recession looms, fueling doubts about the survival of the single currency.

Capital flight, 1931 style, and the true core issue in the eurozone continues unabated, although we should celebrate and enjoy any rally that comes our way, as short lived as it may be. Ultimately the central bank action only states that all is not well, and, for whatever it's worth, the S&P futures reacted positively two full hours before the announcement, racing 15 points in 15 minutes.

Source: Markets And Banking: Attack And Counter-Attack