Washington - The fate of the U.S. banking system and the economic well-being of roughly 300 million Americans, not to mention billions of people around the globe, is now is in the hands of Timothy Geithner, the newly confirmed treasury secretary.

    Few, if any, treasury secretaries since America's first, Alexander Hamilton in 1789, have stepped into the office facing more daunting challenges. Geithner faces an accelerating global financial crisis that's plunging the nation and the world into a recession that's destroying jobs, wealth and the established economic order.

    Geithner must choose a course of action immediately, and he has no sure precedent to guide him.

    "He faces an incredible number of challenges, and they have to be met simultaneously," said Vincent Reinhart, a former top economist at the Federal Reserve who worked closely with Geithner, who until recently was the head of the Federal Reserve Bank of New York.

    Tackling the array of problems that are weakening the economy in isolation hasn't worked. When Congress sought to stimulate the economy last February through what President George W. Bush called a "booster shot" - featuring $152 billion in tax rebates - it wasn't paired with anything to fix the deteriorating financial system. It didn't work.

    When the administration and Congress provided $700 billion to rescue banks in October, that, too, failed to spark the economy because instead of lending it, the banks are hoarding money for better times.

    "The lesson from last year is that the sooner you move the better, because if you act in response to an event you may not set the precedent you want," said Reinhart, who's now a scholar at the American Enterprise Institute, a conservative policy research group.

    Washington is moving again to stimulate the economy. Congress begins voting this week on an $825 billion plan sought by President Barack Obama. Leaders of both parties pledge that it'll be on the president's desk by mid-February.

    The tougher call, needed in tandem, is deciding, and quickly, how best to help the ailing banking system. Geithner must decide soon among competing options.

    One option is simply letting banks fail. That was Herbert Hoover's approach. It brought the Great Depression of the 1930s.

    Another option is sticking to the approach that's already been tried and continuing to inject capital into weak financial institutions until they recover. No one knows how much that might cost.

    The Treasury and other financial regulators also may encourage more bank mergers.

    "I don't know what the alternative is if we don't see the economy being stimulated," said John Coffee, an expert on banking law and a professor at the Columbia University School of Law in New York. "Better to have the strong banks - and they are increasingly small in number - ... consolidating in mergers."

    Another option is nationalizing individual banks or even the entire banking system. This idea has gained ground since Great Britain effectively nationalized the Royal Bank of Scotland last week, taking a 70 percent ownership stake in it and reportedly considering similar moves in other major banks.

    Sweden offers the closest thing to a modern precedent among developed nations. In the early 1990s, amid a steep housing downturn, its government took over the banks. Those that were saddled with the worst assets were corralled into the financial equivalent of a holding pen. This period of financial quarantine eventually ended as the economy rebounded.

    Could such nationalization of banks happen here, in the citadel of capitalism? The government seized mortgage finance giants Fannie Mae and Freddie Mac in September, as well as insurance behemoth American International Group.

    "I think the appetite for nationalization is just not there," said Nariman Behravesh, the chief economist for forecaster IHS Global Insight in Lexington, Mass.

    One reason it's unlikely: There are more than 8,300 federally insured commercial banks and savings institutions in the United States. Putting them all under the banner of a government operation would be virtually impossible, especially if that involved a government representative on each institution's board or executive staff.

    A final option, and one that seems to be gaining ground in Washington, is creating an unpleasant-sounding "bad bank." Think of it as a landfill for bad investments. Banks would unload assets such as distressed mortgages that no investor wants to touch - except the taxpayers behind the government's "bad bank," which would pay for the assets.

    With those bad assets off their balance sheets, banks presumably would resume lending. At some point, once market stability returned, the government would sell the bad assets back to investors, perhaps for profit, perhaps at a loss.

    This was the original idea behind the $700 billion Wall Street bailout, but it focused more narrowly on the mortgages that were pooled together and bundled for sale in slices to investors, a process called securitization. By mid-November, then-Treasury Secretary Henry Paulson abandoned that idea.

    Since October, the crisis in credit markets has deepened and investors have soured on all forms of securitized products, including pooled car loans, student loans, credit card debt and commercial real estate loans. Lenders don't want to lend to consumers, in part because there's no way to pass these loans on to investors since the market for securitized loans has dried up.

    While the problem has grown larger, there's also debate now over the almost humorous distinction between a good "bad bank" and a bad "bad bank."

    A bad "bad bank" would purchase distressed securities at face values or inflated prices, which benefits banks in two ways: It gets the troubled securities off their books, and at prices that raise their levels of capital. The U.S. taxpayer becomes the default investor in them.

    Critics argue that this would do little to establish a true market price for the bad assets and could delay recovery. They favor what they call a good "bad bank" that would buy the troubled assets at fire sale prices and thus allow the marketplace to determine what they're worth. The government's "bad bank" would simply auction off commercial banks' securities at whatever price they could command, perhaps only 5 or 10 percent of their face values.

    In an opinion piece for London's Financial Times, analyst Meredith Whitney, a managing director of Oppenheimer & Co. in New York, likened it to struggling Americans holding a garage sale to raise money.

    "While it is never pleasant to sell one's 'crown jewels,' the strain of this credit crisis and the overextension of many bank balance sheets will require that they sell what they can and perhaps not what they would like," wrote Whitney, who's become a Wall Street star for her sober assessments of bank-sector reality. "After all, that is what the average taxpayer would be forced to do."

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