When DonD asked "When the Fed pumped billions into the Market to prevent its collapse, how did that work? Whom did they actually give/loan it to?" I thought I'd try, although I'm not a practitioner in the area.

The summary seems to be that some institutions, categorised as 'bottom feeders', loaned money to people who hadn't much chance of paying it back. The bottom feeders financed their operations by borrowing from lenders 'higher up the food chain' and this procedure trailed all the way to the 'top of the market' institutions, who maintain their liquidity by borrowing between themselves. If you look at the chain from the top down rather than from the bottom up it's called 'distributing debt', progressively down to borrowers who are more and more risky at each level of descent; the 'bottom feeding lenders' are the "sub-prime market" that's gone 'bottom up' because the people who hadn't much chance of paying back their loans started not paying their instalments and defaulting.

When that happened the bottom feeders still needed finance to continue operating and sending their kids to school and buying their plasma screens but the institutions from whom they normally borrowed were finding money harder to get, because all the way up the trail everyone wanted to ensure they loaned only to people who could repay it. 'Credit became harder to get' in short and when demand exceeds supply, prices (the interest rates charged) go up. The quantity of money available in the system, to supply the required liquidity, was not enough to enable all the lenders/borrowers at the top of the chain to keep credit available.

So the French equivalent of the Federal Reserve in USA (and the Reserve Bank of Aust.) and other central banks injected money into the system by lending it to the top (and "secure") institutions, usually by selling them particular types of bonds at the wholesale interest rate. This gets paid back in the fullness of time and needs to be controlled to prevent the sort of inflation that occurred in 1930s Germany but, in the short term, it provides cash to lubricate the liquidity among the top banks, who then have some (slightly increased) ability to lend to the ones further down the chain.

A bit long and a bit 'quick and dirty' but I hope it helps.

Cheers, Rowan