There is nothing more frustrating than listening to defenders of fundamentally flawed bailout plan that House Speaker Nancy Pelosi and top Democratic and Republican leaders failed in passing Monday must be “saved” by Democrats who recognized when the House voted on Monday that this was the wrong response.

Pelosi’s plan is based on Treasury Secretary Hank Paulson’s wrongheaded scheming. Democrat leaders may have tinkered a bit with the Bush aide’s proposal, but certainly not enough to make it acceptable — let alone wisely enacted.

Oregon Congressman Peter DeFazio says, correctly, that the problem with the Democratic speaker’s bailout measure, which the House rejected by a 228-205 vote – with progressive Democrats joining fiscally conservative Republicans to say “no” – is that it “is still built on the Paulson-Bush premise.”

DeFazio, a Democratic dissenter, says that the bill Pelosi tried to get the House to back Monday demands that taxpayers take on too much of the risk which creating openings for Wall Streeters to pocket millions (perhaps billions) in federal dollars. While the Pelosi plan may put some limits on so-called golden parachutes, it still allows for what DeFazio describes as “camouflage parachutes”–hidden payouts to the corporate CEOs who created the crisis.

“We can do better,” says DeFazio. “We should start again on a new package.”

That’s exactly what the Oregon populist is doing with a new proposal, the “No BAILOUTS Act” (Bringing Accountability, Increased Liquidity, Oversight, and Upholding Taxpayer Security). Introduced Tuesday with co-sponsorship from some of the most outspoken critics of the Paulson machinations – including Ohio Democrat Marcy Kaptur, a leader of the anti-bailout movement in Congress – the measure would impose a securities tax equivalent to one quarter of one percent of profits and empower the Federal Deposit Insurance Corporation to deal more effectively with bank failures.

The plan is based on a proposal made last week by former FDIC chair William Isaac, who recalled that in the 1980s Congress enacted a “net worth certificate” program – which allowed the federal agency to shore up the capital of weak banks to give them more time to resolve their problems – and the FDIC resolved a $100 billion insolvency in savings banks for a total cost of less than $2 billion.

“It was a big success and could work in the current climate,” argued Isaac.

The chair of the FDIC during Ronald Reagan’s first term explained that that:

If we were to (1) implement a program to ease the fears of depositors and other general creditors of banks; (2) keep tight restrictions on short sellers of financial stocks; (3) suspend fair-value accounting (which has contributed mightily to our problems by marking assets to unrealistic fire-sale prices); and (4) authorize a net worth certificate program, we could settle the financial markets without significant expense to taxpayers.

Say Congress spends $700 billion of taxpayer money on the loan purchase proposal. What do we do next? If, however, we implement the program suggested above, we will have $700 billion of dry powder we can put to work in targeted tax incentives if needed to get the economy moving again.

The banks do not need taxpayers to carry their loans. They need proper accounting and regulatory policies that will give them time to work through their problems.

DeFazio, Kaptur and their allies essentially agree.

So, too, does the powerful Service Employees International Union, which has endorsed DeFazio’s proposal.

“We finally have a plan that will restore confidence in the financial markets without writing a blank check to the same Wall Street banks and CEOs who got us into this mess,” said SEIU President Andy Stern. “This is an important, short-term solution that protects taxpayers and their savings accounts. To revive the economy over the long-term, we must address rising unemployment, stagnant wages, the healthcare crisis, and a tax system that is tilted in favor of the wealthy.”