So, the government is likely to commit $700 billion or some other gargantuan amount of money to help solve the current crisis.  I want to make a modest proposal; the underlying them is that we should punish those who did wrong and reward those who do right.  Here goes:

The banks

The Department of the Treasury will purchase non-performing loans from banks at a punitive--that is, less than market rate.  Banks that participate in the program will also suffer and additional modest, but not insignificant, tax on profits for ten years.  The notes purchased for the banks will be collateralized and made available for sale--more in a moment.

The homeowners

Homeowners who are at the other end of these bad loans will have their mortgages refinanced at the prevailing 30-year fixed rate plus 100 basis points.  So, if the 30-year fixed rate is 5.9%, then the newly minted 30-year mortgage will be at 6.9%.  Here's the important point: the newly minted mortgage will be based on the outstanding balance and not on the current market value of the property.  Next, each year, the outstanding balance will be adjusted up by the core rate of inflation.  The goal is to encourage the homeowner to work hard and pay off the loan by getting a traditional mortgage.  If someone can't afford a 30-year fixed plus 100 basis points, they shouldn't be in the house anyway.
 
Next, we come to the people that foot the bill (isn't this whole mess a great analogy for Original Sin: we didn't do anything, but we carry the consequences!! :o )

The people footing the bill

So, the government essentially collateralizes the debt in some fashion, bundles it and uses the stream of interest payments to those who purchase the debt.  Rather than fund it exclusively from foreign borrowing, why not do something analogous to those war bonds of WWII.  There's a catch.  I want to reward those who are prepared to should the burden for others.   These new "bonds" could carry a modest interest rate.

• Create a new IRA that has all or almost all the characteristics of a Roth IRA;
• There should be no limit to contributions and rollovers from traditional IRAs are allowed;
• There is one and only one stipulation, however: when it's set up, the owner of the IRA has to have at least 15% of the assets invested in these new government issued instruments.  These instruments cannot be sold for 10 years; if they are it negates the tax benefits of this new IRA;
• The other 85% can be invested just like a regular IRA and, after 10 years, all distributions are free of taxes, just like a Roth IRA.

I am trying to think of something that makes the whole bailout (not a great term) more palatable.  I do think that those who "sinned" for want of a better term, should not be rewarded and should actually have to face (albeit in a diluted form) the consequences of their actions.
 
Those in the US that are prepared to step up and help in bailing out others should be rewarded.  It's not a perfect idea, but it does minimize the moral hazard inherent in what's likely about to happen.