"Indeed, we remain firmly of the view that further substantial support will be required as the extended recession drives up losses on assets which have, thus far, performed reasonably well," Shepherdson said.

Paul Krugman, winner of the 2008 Nobel Prize for Economics, said the plan is not clear. "What is the plan? I really don't know," he wrote in a New York Times column. "But maybe it's a Trojan horse that smuggles the right policy into place."

Lending reluctance

Investors and economists are skeptical how the new proposals will get banks to start lending.

According to the plan, a consumer or business lending facility will be created to leverage up to 1 trillion dollars to jump start the secondary lending markets, a move that aims to get banks to both lend and bring down borrowing costs.

The facility will be conducted through the Fed's earlier Term Asset-Backed Lending Facility (TALF). The difference lies in that the size is much bigger than the initial US$200 billion.

But it comes face to face with the reality that consumer and business loan demand is collapsing while banks remained reluctant to increase lending.

A conversation between Oppenheimer & Co. banking analyst Meredith Whitney and JP Morgan Chase's Chief Financial Officer Michael Cavanaugh, revealed last week, proved the concern.

Cavanaugh said that no amount of capital infusions from the government will get JP Morgan to lend more and the bank simply has no appetite for risk in a recession. So it is quite clear that even if JP Morgan accepts more government funds, it's not going to lend it out soon.

"Even a healthy bank would be much more cautious in this environment, and it is unrealistic to expect battered, rescued institutions to behave very differently," Shepherdson said.

(Xinhua News Agency February 11, 2009)