(1) Limiting debt issuance would only be expansionary if it didn't imply a reduction in government spending. And financing growth by expanding the money supply is a perfectly acceptable Keynesian solution. If this led to inflation and rising interest rates that would suggest the economy is no longer in a liquidity trap and the Fed could step in to rein in inflation while the government could go back to raising money on the bond markets.
(2) I'm under the impression that US banks reduced lending following the 2008 bailout. I seem to remember Andrew Ross Sorkin making this case, but either way - I don't think the best solution to the present crisis is a 20 year process of watching the banking sector delever as in Japan! Better to have controlled failures to wipe out debt and reduce moral hazard while making sure the economy is primed with the demand to deal with the fallout. How exactly to do that is a good question.