I am not that smart but do understand by working experience banking ,finance ,currencies and derivatives. Here is what would work quickly:

1) First, drop the fed rate immediately to 1/2 of one percent from the current 2%. That would drop the dollar to perhaps 1.40 to the Euro, but rally all the Dow exporters , good for an instant 600 points;

2)Simultaneously, offer each lending bank "an offer it cannnot refuse" whereby the fed advances 50% of that bank's existing (post Bailout) capital in return for 4% non-participating preference shares. This added capital will be automatically redeemed if it is not levered into lending activity ("use it or lose it") within 180 days.

Why this will not happen: As Bill Gross expounded a couple weeks ago (pre Bailout bill) Republican orthodoxy stands firmly in the way of many really good solutions that have some unequal consequences. Better we all go down on the mothership America together, than 90% of the people survive with varying degrees of injury and perhaps 10% (Say, the shorters) get no or negative benefit. As long as we have "control" through an army and a reserve (allbeit bloated) currency, the good of the average guy is not critical.

I have taken the liberty of responding on the Main board, hoping that most of you have a suitable life jacket for several months in frigid water. BTW, Canada should be chopping its rate independently, but with a huge % of our workers commissioned in the public and crown controlled sectors, the domestic economy is a distant fifth place in issues.