Here is why the government isn't letting that happen:

“It is well understood that the four major banks would likely need an additional capital injection should they be forced to mark the second-lien mortgages on their balance sheets to a realistic value,” Greenwich Financial’s Frey said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=apwrXlpuvZo0

In other words... the four major American banks would go bankrupt if they were using realistic accounting practices.

Here is why the government isn't letting that happen:

“It is well understood that the four major banks would likely need an additional capital injection should they be forced to mark the second-lien mortgages on their balance sheets to a realistic value,” Greenwich Financial’s Frey said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=apwrXlpuvZo0

In other words... the four major American banks would go bankrupt if they were using honest accounting practices. The banking system is still a bomb waiting to explode.

What they can do is... not give money.. but loan some money, because, in theory, governement are at risk-zero.

Here they loaned some money to the banks and became shareholders. When the economy will be more stable, they will be able to buy back the shares and their independancy.

This way:

1- Confidence is restored,

2- Credits are released

3- Companies can go back to their business and people stop loosing their jobs

If everything works well, the governement might even make a profit out of it.. which will be reinvested in the national economy.

... well that is in theory... ...

Your theory is based on the assumption that those companies will spend that money wisely, but really this is like giving money to a crackhead and thinking they'll buy food with it.

What ?

Of course not-> it is MONEY TO THE BANKS ! It is regulated (see Baal II, Basel II banking regulation and risk mitigation).

It is not my theory, it is what EU governements are doing at the moment... (The theory part is about making money out if the loan between banks and governements).

Companies only get credits from the bank like they alway did (Nobody runs entierly on liquidities...).

Jeez....

Banks making terrible loan decisions are one of the main causes of the recession....just b/c they are regulated doesn't mean they can't squander money.

The precedents for banking crises like this are Sweden's and Japan's.

Japan tried lots of things which failed (stimulus, shifting debt from banks to the government, i.e. the things USA is trying now). They later had better results by letting some banks fail after auditing them and concluding they were insolvent, and nationalizing others.

Sweden forced banks to write down all their losses, and then helped them:

http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html

I think the most important thing is to be realistic. USA's actions towards banks are very naive (assuming 8% unemployment when setting their capital levels, allowing them to hide debt under the carpet, allowing them to continue doing the same things that led to this problem... I have sources for all of these if someone's interested). They're not just naive, but they hurt the taxpayers a lot, shifting debt to the government's balance sheet and paying the banks handsomely for it (as the OP as well as many other articles show).

No because when the governement becomes the biggest investor (even temporaly), they have seats in the steering comitee.

Simple...