Should we grudge the central banks?

I hear a lot more arguments against the central bank policies that inflate money supplies and its support to artificially-cheap credit that provides the fuel for speculative fever and instability.

On one hand, a liquidity crunch inspired sharp declines on many of the largest stock exchanges around the world. On the other hand, the Fed, the European Central Bank and the Bank of Japan pumped in liquidity worth hundreds of billions of dollars. Their idea was to restore calm by providing the means for borrowers to meet short-term credit needs. I have discussed it here earlier.

It may seem counter-intuitive but the good news was that the credit crunch was a signal that air was being released from stock market bubbles. It was a welcome event that excess liquidity behind most imbalances in the global economy was finally retreating. Interest rates are the single-most important conveyor of information — with these artificially low, investors felt their wealth had risen and got reckless.

Hey, but wait a minute… Central Banks intervention has as much to do with politics as it has to do with economics. When large number of people reel under debt mountains, someone has to help them ease the load. When Central Banks quietly ignore a subprime lending that overlooks all norms of credit assessments and individual’s capacity to repay debt, they’ve already precipitated a crisis – first sin. Now when it recoils, you grudge the central banks for infusing liquidity – the second. We're talking about lives here in millions - not just what makes good economics. Either you don’t commit the first sin or go cool with the second... can’t have it both ways. What do you think?