government should take an equity stake in the surviving institutions

There's good reason for the outrage among both ordinary citizens and elected officials, says Lawrence White, economics professor at NYU's Stern School.

First, the original proposal giving the Treasury Secretary total power and no oversight over the bailout "has to have been a political mistake,"

White says. "It didn't win them any friends [and] couldn't have been a wise thing." Second, and more important, the proposal for the government to buy and hold (to maturity) bad bank assets is flawed, White says, as detailed here.

A better option would be the "Swedish model" of forcing write-downs, he says, and then reliquefying the banks by the government taking an equity stake in the surviving institutions.

This is similar to what the government did with AIG and what Merrill Lynch did with its Lone Star deal this summer. Another reason outrage is justified is that Paulson and Bernanke are saying the plan needs to be approved quickly.