Crisis of Confidence... Are Govt banks the solution?

Looking back at the recession that unfolded for the past few months. I still couldn't understand what exactly happened that caused the economy to collapse. The US was already in recession for more than a year. Out of the blue, the banks start falling like a pack of cards and suddenly Asia is affected. The explanation given by the experts for the fallout was that the confidence was shaken. Suddenly credit lines from banks were tightened not only for the US but all over the world and trade lines stalled due to non-performing debts.

If that was the case, would the problem be alleviated if Govt banks were set up all over the world instead. Since Govt all around the world is already pumping money to save the banks. What difference does it make if Govt banks were set up instead. If Govt banks were set up instead, credit lines could be loosen and trade lines could function as normal.