Maybe the US congress isn't so dumb after all. If the US government wants to save dying banks before they take others down with them, it should choose the clean and direct path: Inject capital into them. Take ownership stakes in return. Where that's not feasible, seize them and sell their assets in an orderly way, just as the Resolution Trust did after the 1980s savings-and-loan crisis.

Only after a company's shareholders and debt-holders have been flattened should taxpayers take a hit. And for a $700bn investment, US taxpayers should get a lot more in return than a gargantuan pile of toxic waste.

For that much money, the US government could buy 23 of the 24 banks in the KBW Bank Index, including Bank of America and Wells Fargo. And it still would have money left to buy a stake in JP Morgan Chase, the largest company in the index.

Infusing capital directly, though, was too simple for Paulson. It lacked subterfuge. He decided the way to save the financial system from the evils of structured finance was through more structured finance.

Instead of asking congress to let the treasury recapitalise needy banks, he proposed buying some of their troubled assets at above-market prices. This would have let other banks create phony capital by writing up the values of similar assets on their own balance sheets, using the treasury's prices as their guide.

In short, Paulson's plan was one part robbery (with the banks doing the robbing) and one part accounting sleight of hand. No wonder congress rejected it first time around.

If Paulson or congressional leaders devise a Plan B, they should look to the example of Fortis, Belgium's biggest financial services company. Last week, the governments of Belgium, the Netherlands and Luxembourg invested €11.2bn euros in Fortis. In exchange, they got ownership of almost half its banking business.

That's how a government intervention is supposed to work. The company gets fresh capital, which has the added benefit of not being fake. The buyers get equity. Legacy shareholders get slammed with dilution. And if the company recovers, the government can sell shares to the public later, maybe even at a profit.

Such simplicity might feel unnatural to someone like Paulson, who used to run Goldman Sachs, or a congressman such as Barney Frank, who depends on campaign cheques from bankers like an infant needs mother's milk. And lots of taxpayers might object anyway, because it still would involve sending big cheques to banks.

At least voters could understand a plan in the European mould, which might lead them to be more forgiving about any unpleasant details. That's better than trying to scare the public into supporting a bail-out that doesn't make sense.

As for the illiquid assets still on banks' balance sheets, the best way to find out what they're worth is to start disclosing every conceivable piece of data about them, right down to the daily cash flows they produce. A big reason subprime mortgage-related securities aren't selling is that outsiders can't see what's underlying them on a timely basis.

Remove the kimonos, and capitalism will take its course. At some price, buyers will emerge, once they can see what they're buying. Banks could clear their books. The companies that are able to attract fresh capital would survive. And the ones that couldn't would die, as they should.

What the US congress must remember is that Americans don't exist at the pleasure of the country's banks. It's supposed to be the other way around. The important part is to make sure you and I get something of value in return for our money.

Jonathan Weil is a Bloomberg News columnist