It is a remarkable shift for the Administration, which asrecently as mid September had rejected the option ofnationalization or even partial nationalization of a bank. More tothe point, the new development also throws into question the fateof the debt repurchase plan that was--and technically still is--thecrux of the $700-billion Emergency Economic Stabilization Act of2008 passed at thebeginning of October.

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It is unclear whether the plan to buy toxic debt will no longerbe a centerpiece of the rescue plan now that Treasury has alsodecided it will buy shares of these banks, Peter Cohan, a principalof Peter Cohan & Assoc., tells GlobeSt.com. "Frankly I couldn'tbe happier if that plan [to buy toxic debt] becomes DOA. There areso many reasons why it will not work: it will be hard to set anappropriate price, especially for securities that have tranchesrated at different risks. If Treasury sets a price that is higherthan the value on the bank's book then the bank realizes a profit,which isn't right. If the price is set under the book value, thebank would have to take a write-off, which would then have tooffset a capital loss--which of course the banks couldn't do. Sothey would turn into zombie banks for all intents."

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Cohan doesn't think the Administration will publicly jettisonthe plan to buy debt. "I think it will just focus on the capitalinjection plan and if that works they will quietly forget about theother."

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The problem is that the plan to buy up toxic debt will take awhile to implement--at least until the end of the year, StevePumper, executive managing director in Transwestern's InvestmentServices Group, tells GlobeSt.com. "In my estimation I thinkTreasury is going to take partial ownership of the banks as atemporary solution until the debt plan can get off of the ground."The two approaches can easily co-exist with each other, heconcludes.

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Whichever approach the Administration chooses to emphasize--debtpurchases or direct purchases of banking stock shares--thecooperation of the world's Central Banks will be essential.Fortunately, after a brief spell of Schadenfreude among some ofthese institutions, all have concluded that the entire globalsystem is at risk, not just theUS.

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On late Friday, a meeting of the Group of Seven FinanceMinisters and Central Bank Governors--which includes Canada,France, Germany, Italy, Japan, the United Kingdom and the US--endedwith the release of a broadly worded plan of coordinated action.Generally noted to be lacking in specifics--for instance, step oneof the plan calls for the use of all available tools to supportsystemically important financial institutions and prevent theirfailure-–the assumption is that details are being worked on behindthe scenes. "Of course it isn't going to end with these broadpromises," Pumper says. "Governments are working feverishly to puta tangible solution in place." The coordinated cut in interestrates last week is an example of that." On that subject, Pumperfeels that another 50 basis point could stand to be trimmed fromthe federal funds rate--if only to make hoarding cash asunattractive as possible.

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Indeed, once the Washington, DC-based G7 meeting was over, at asummit chaired by French President Nicolas Sarkozy representativesfrom 15 European countries pledged to guarantee interbanks withmaturities up to five years until the end of next year. This is akey measure, many say, as the heart of the credit crisis is banks'reluctance to trust one another. Other measures include a decisionto allow governments to buy bank stakes and a commitment torecapitalize banks in distress. Britain, of course, had announcedlast week it would guarantee interbank lending as well as takestakes in the country's biggest banks in a program of partialnationalization. All that remains--at least on this particularfacet--is whether the US will also agree to guarantee interbankloans.

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