The major banks have all reported good earnings last quarter, using every accounting trick in the book, in order to repay the TARP loans to get the government off of their backs so they can continue paying themselves enormous bonuses. The problem is they've slammed the door to further bailouts and put the government in the horns of a dilemma on how to deal with the results of the stress test they conducted. It's a gigantic game of brinksmanship where clearly all the players know the gig is up very soon.
As the banks implode, the Fed will continue to try and fill the enormous balance sheet hole with printed money. Given that the Fed is willing to do anything, legal or illegal, to increase the money supply, I think they will succeed, but there will be no political will reverse gears quickly enough to soak up the excess liquidity afterwards and massive inflation will result.
The only ways this won't happen is if the economy seizes up so thoroughly that the velocity of money goes to zero (people hoard money instead of spending it, regardless of how much excess they have) or if the government comes to it's senses and reverses course, which is vanishingly unlikely (although former Fed Chairman Paul Volker has recommended yanking the Fed's leash (http://www.bloomberg.com/apps/news?pid=20601087&sid=auvswgtfT6_Q)