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A scramble to unlock bank lending

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One way might be for the US Treasury to use some of the $700 billion authorized in the rescue plan as new capital for the banks, rather than buying at auction the troubled debt securities held by the banks.

"It's quicker if you do direct injection instead of buying troubled assets," says Lyle Gramley, a consulting economist at Stanford Washington Research Group and a former governor of the Federal Reserve.

Injecting capital directly into the banks also would give more heft to the money, says James Barth, a senior finance fellow at the Milken Institute in Santa Monica, Calif. "For every dollar of capital, you can lend multiple dollars, whereas when you buy up troubled assets, you do not increase capital," says Mr. Barth, a former bank regulator during the Reagan and Bush administrations.

There is precedent for the government (and, by extension, US taxpayers) in effect becoming a shareholder in private financial institutions in a bid to save them. "We did it during the bailout of the savings and loans in the 1980s, when the government took equity warrants in the institutions," he says.

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