If instead of flushing $700 Billion to delay the inevitable, Congress were to create 438 new banks, one per congressional district, and advance each of them  $500 million against warrants for senior stock, even if they were required to hold 5% equity against loans, they each would have $10 billion loan capacity.  That is $4.38 Trillion in new loan capacity for a total of $216 billion in new money.  That should force existing, solvent banks back into the market to compete for market share.

Require these banks to operate on conservative lines and to fund Govt. guaranteed student loans, commercial loans to credit worthy borrowers, real estate loans that meet upgraded FHA requirements, etc.  Make bank officers accountable to the spirit of the regulations as well as the letter and make them liable to disgorgement of bonuses and salaries above a certain level on a declining , prorated basis should the institution fail within five years of their leaving it.  That should solve liquidity problems and return sanity  to banking.

Compared to the Paulson plan, it would leave a lot of bullets still in the gun to deal with problems that can be solved.    

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."