The $700 billion bailout is intended to buy or somehow guarantee the toxic debt taken on by banks, so that they can then feel free to lend money again.
But, as Khan points out, what if they don't? What if they just hang onto the money as a hedge against other parts of their debt turning toxic--- which, as Khan pointed out, is happening very fast as every conceivable investment begins to go down the tubes.
He also pointed out that $700 billion is more than all of our banks are worth.
So what he suggested doing was using the money to capitalize about thirty brand-new national banks. The new banks won't have toxic debt, they can start lending right away.
The old banks either fail or don't, but it doesn't matter either way, the money system is safe and full of cash.
And--- so that we don't end up with thirty huge state-owned banks--- the banks then issue stock which is distributed evenly to every taxpayer in the U.S.
They'll never do it, because it doesn't serve the interests of anyone but the taxpayer, but isn't this a totally cool new meme?