take a guess

Paulson/Bernanke: $700 Billion at 'Hold to Maturity' Pricing

Here is a simple alternative that would satisfy most senators and Bernanke:

The treasury buys up the loan with cash for a discounted mark-to-market value of the property determined by an auditor authorized by the congress and inject a capital through preferred shares into the company up to the difference between the cash value and the hold-to-mature value. The preferred shares have a punitive interest rate, such as 11%, redeemable in 5 (or given number of) years, and with exclusive voting rights on executive pays and dividends. The government keeps these rights until all preferred shares are redeemed.

The government can use some portion of the interest income from the preferred shares and the loans to fund programs for rewriting the loans. The rest of the interest income can be used for compensating future potential losses on delinquencies and foreclosures of these loans. The government can hold the loans to maturity, default or until someone willing to purchase it with the mark-to-market price after the loans have been adjusted to prime status.

Given that the financial institutions will have increased capital to fund regular operations, further restrictions on capital ratio can be phased in overtime and then phased out after all money have returned to the treasury.