Recapialize the Banks Through the PEOPLE
The best way to convince banks to resume lending is to return the problem loans to health. The best way to do this is to give money to the PEOPLE. Those who don't need any relief will spend the money - thus stimulating the economy. Those who are fearful will bank the money - thus increasing bank reserves. Those who truly need the relief to stay in their homes can start paying their mortgages again - thus turning troubled loans into good loans once again. Everyone wins. People stay in their homes. Banks gain reserves and the confidence that writing a new loan might be a profitable undertaking once again.
Don't buy troubled loans. Use the PEOPLE as the conduit to funnel in the dollars needed to stabilize the financial system.