Alex at MR points out that many noted economists, from both sides of the aisle, do not support the Paulson Plan, which passed after the addition of many sweeteners
But, looking through the links, I see a serious misconception that could kill many ideas, and a fatally flawed assumption that would sink most of the others:
1. Krugman and his ilk appear to be ignoring the significant adverse selection process going on. He suggests that instead of purchasing assets, we should instead focus buy preferred stock. This gives us a permanent equity stake, acts directly on the balance sheet, and should even hurt stockholders. However, it does nothing to actually reveal which banks are exposed to bad debt, and which are solvent. That's the biggest problem we have in the financial sector right now: no one really wants to lend out money to someone who can't pay it back, and you don't know if the other guy can't pay it back if you don't know how many assets he has that are linked to the subprime market.
The Paulson plan, in theory, avoids this by buying up a lot of those assets, and creating a market for others to buy them (follow the leader, so to speak?). We can theoretically make money by paying the "Hold to maturity value." Bankers can't hold these assets to maturity because they have significant problems with upholding certain capital ratios: they will have to sell the bad assets at firesale prices.
That's the misconception
2. Because of that, a lot of economists, like Tyler Cowen, state that we need to figure out which banks are insolvent. The problem is that, even knowing which banks are insolvent won't actually help...hence the need for speed bankruptcy. A bank that goes through "speed bankruptcy" can have a payment plan forced down its throat and can force its creditors to accept it through the force of law, and have it done relatively fast: this means that someone new can take over the business, and market operations can return to normal.
The important bit is the "speed" part. Bankruptcy proceedings usually last a very, very long time, and, with all the complex derivatives, will likely take even longer for a modern bank. If you can't get a speed bankruptcy, we end up totally screwed, like in the LDC debt crisis: people fight for years over who gets what, and, in the meantime, the bank can't get capital. So, operations are hampered, and the economy suffers.
But, even if the "speed" part works, we will still have to wait for the banks to fail...even a failing one can keep itself afloat for a while, since not everyone knows that it is in danger and someone is still going to be lending...how do we solve that?
The Paulson plan, for all it's flaws, addresses those two fundamental concerns. It may not do anything, being a drop in an ocean of debt, but it's a lot better than nothing, and a lot better than most alternatives.