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Paul makes a good point on there. The Fed already has the facilities to lend hundreds of billions of dollars. Yesterday they increased their lending to banks to I believe $650 billion. The same sort of thing can happen (sorta) through the fed instead of the treasury
What he didn't mention though is that this didn't settle the credit markets down. The TED spread is way up there. Banks aren't lending to each other. The credit markets are effectively gummed up.
Another thing he didn't mention - but which is related - is that the Fed already has the legal authorization to take hundreds of billions of dollars worth of credit derivatives as collateral and lend money to those institutions. In fact back when the credit crunch first started - or depending on your point of view - during the first credit crunch - the fed purchased $38 billion in mortgage backed securities in the open markets.
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