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It seems to me that the bail out is aimed at preventing a "credit crunch". Banks have already stopped lending to each other and people are afraid that this might continue on to main street affecting the ability of businesses and individuals to borrow money.
If the above is true, what about a three step solution like this:
1) First, NO BAILOUTS, period. Freeze the current regulatory framework that governs banks. Freeze the Fed for a year or two.
2) Come up with an "emergency" regulatory frame work that allows foreign financial institutions to come in quickly and open shop in the US. Banks, which have cash to lend to solid businesses can start working in the US quickly.
3) Allow Chinese, Europian, Russian, Indian banks to start operations in the United States. Right now, we borrow from them in a long and complicated way:
a) The government borrows from the fed
b) The fed sells the debt to the Chinese, Europians and Russians.
c) We service the debt by paying taxes.
Then, we will simply borrow from them. Directly.
In this way, you can decouple "wall street" and "main street". If the banks collapse, my deposits (up to $100,000) are insured by the government and my ability to do business will not get hurt with my brand new "Bank of China" credit card. My business will still be mortgaged to the Chinese, I will just get rid of the middlemen.