WSJ reports the U.S. government, recognizing that the banking crisis is larger than originally thought, is laying the groundwork for a second phase of its rescue attempt with plans to tackle the toxic assets gumming up the system. Officials at the Treasury, Federal Reserve and FDIC, in consultation with the incoming Obama administration, are discussing a range of options, according to government and transition officials. One plan would create a government bank that would buy up bad assets. Another would standardize efforts to have the government guarantee banks' assets against further losses... To tackle the problem, Federal Reserve officials are advocating aggressive action to take bad assets such as mortgage-backed securities off the balance sheets of financial firms. The incoming Obama administration, which shares the Fed's belief that these toxic assets are impeding any financial and economic recovery, is also exploring ways to deal with the matter. "All of these ideas are designed ultimately to facilitate more lending in the economy," said FDIC Chairman Sheila Bair in an interview. "It's essential to get some private capital back into these banks."
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