Mark Thoma gives an interesting look on Krugman's post and what some solutions to the problem could be

http://economistsview.typepad.com/economistsview/

In his post he quotes a solution from Thomas Palley which states

"There is a very simple and fair solution to this problem. That solution is for the Federal Reserve to open its term auction facility to all publicly traded financial intermediaries rather than just deposit taking institutions. That means giving access to insurance companies, mortgage investment trusts, mutual funds, and hedge funds. These firms would be subject to the same borrowing terms as banks, and would have to post collateral of identical quality."

Though in the end he doubts that this alone would be enough to end the fear.

http://www.rgemonitor.com/blog/setser/248489/

Brad Setser argues that while Krugman's claim that what the fed is doing is just a drop in the bucket, he forgets

"The Fed and the ECB typically do intervene in small quantities - a few billion here, a few billion there - and for a short period of time. But the Fed and the ECB aren't the only central banks active in the US and European government bond market. China has something like $60b to place in these markets every month right now.
That doesn't strike me as a drop in the bucket."

http://www.rgemonitor.com/blog/setser/248489/

I think the only chance to get out of this mess is for the fed and the foreign central banks in its myriad of forms to lend money to all forms of financial institutions besides the banks, otherwise the fear, margin calls, writedowns and bankruptcies are going to get out of control. The oil producers and the big Asian economies are all sitting on a ton of cash. What needs to happen is for these financial institutions to be bought or heavily indebted to the SWF's. Not sure that this will even work at this point but its got about the best shot of working. Of course this probably will not happen, at least on a big enough scale to be successful. But its probably in everyone's best interest for it to happen because I'm pretty sure that if the US financial system crashes, every one else is going to get dragged down as well. After all we are all in bed together more now than we were in the thirties.

"Looking for my Lo and Behold" The Band