This started out as a comment at TDAXP .
Here is what the USAGOV should do (not what they plan to do ) – and it should be done quickly and without mercy:
1) Have Bank regulators set the appropriate capitalization level for the bank
2) Assuming level not met, declare bank insolvent.
3) Wipe the shareholders (common and preferred) equity out.
4) Wipe out a significant amount of the long term debt (at least 50%)
5) Convert the rest of the debt to “equity”.
6) Fire the Board. Fire the Executive Leadership team. Fire the Auditors.
7) Hold an Open Auction for Preferred Stock and Common Stock to get capital infusions.
8 ) If the appropriate capitalization level set by regulators is not reached, USAGOV also makes an investment as either as a secured loan or as a purchase of prefered stock (plus warrants) at an above market coupon rate (say 1.5 X market rate) to reach that level while also transferring all of the “toxic assets” to a USAGOV fund that maybe the Taxpayers can get something back someday.
9) The executives, boards and auditors should be investigated for fiduciary misconduct and civil litigation undertaken by US Attorneys to recover cost and looted wealth on behalf of the old shareholders.
Primary End Result: A working publicly-tradeable bank with an appropriate level of capitalization that is without “toxic assets”.
Secondary End Result: Taxpayers/USGOV may collect some money eventually from the Toxic Assets.
Note 1: USGOV should create closed-end mutual funds to sell off pools of the Preferred Stock to recover USGOV upfront outlays  and lessen USGOV temptations to interfere with those banks.
Note 2: I don’t have any “rescue” for Mortgage holders. Let the mortgages fail, and don’t prop up housing prices. This needs to correct.
Note 3: I don’t have any “rescue” for long failing companies. Let them die. Let Creative Destruction take place. Don’t feed the zombies.
Note 4: The only stimulus I am interested in  is something along the lines of:
(a) Create Incentives for Businesses to Make Capital Investments by allowing 100% immediate depreciation
(b) Cleanup and rebuild America’s National Parks – and the state and local parks too.
(c) Finish the Yakima Nuclear Waste project
(d) Clean Up the Brownfields and toxic dumping grounds
(e) Start planning and constructing a national network of Smart Power Grids
(f) Install Municpal Plasma Furnaces   across the country to create energy and elimnate landfill trash dumps.
(g) Pick a single “Wow” project.
Note 5: I would be okay with just (a), (e) and (f) from above.
Note 6: On that too-big-to-fail crap. Any enterprise that is “too big to fail” should have anti-trust action taken against it by USGOV/DOJ to break it up rapidly. 
Note 7: The currently regulatory alphabet soup is a failure. SOX is a failure. They should be replaced with something. I will leave that something for now to Future Purpleslog.
If USGOV tries to lessen this, they will just stretch it out and make it worse. Nor will the Political class be able to avoid giving rewards, favors, and protection to allies. They just can’t help themselves.
Update – Note 8: USGOV should fast any regualtory red tape for those startup up brand new banks from scratch.