Let's say that the government agrees to some sort of bailout. At some point, the RTC-like entity will use taxpayer money to buy distressed securities. And therein lies the big challenge. How do you value the securities? It's a bit like an IPO. Price it too high--and the buyers (taxpayers in our case) lose. Price it too low--and the sellers (banks) lose, especially if they are carrying them at a higher value on their books. You pretty much have to go on a security-by-security basis, looking deep into the underlying mortgages, the basic building blocks. The New York Times notes a wide range of valuations, from the 22 cents on the dollar implied by the Merrill Lynch-Lone Star deal, to the 60 events at which Citigroup carries some assets. It all depends on the specific securities. Bill Gross's offer to use PIMCO's bond analysts is starting to sound better. But let's face it, trying to pick prices is like picking stocks. Taxpayers could really get killed on some deals. So this may make the idea of equity more logical. Inevitably, some deals will sour for taxpayers. But equity stakes in aggregate would offset the losses.

For more:
- here's a New York Times article on valuations