After deciding to nationalize Fannie, Freddie and AIG, Treasury Secretary Hank Paulson is considering setting up a federal government entity to hold banks’ debt. This from Reuters:

U.S. Treasury Secretary Henry Paulson has been shopping around a proposal to congressional lawmakers that would create an entity to deal with the bad debt, similar to what was done in the savings and loan crisis, a congressional aide said.

S&P financial stocks were up 9.5 percent.

The Dow Jones industrial average was up 353.77 points, or 3.33 percent, at 10,963.43. The Standard & Poor’s 500 Index was up 41.07 points, or 3.55 percent, at 1,197.46. The Nasdaq Composite Index was up 74.84 points, or 3.57 percent, at 2,173.69.

Here’s the lowdown on Uncle Sam’s purchases from Addison Wiggan’s and Ian Mathias’s 5. Min Forecast…

• Fed will offer up to an $85 billion 2-year loan to AIG

• In exchange, the Fed assumes 80% ownership of the firm

• All money borrowed is to be repaid at 3-month Libor, plus 850 bps… about 11% interest rate

• AIG will conduct an “orderly” sale of its assets until the loan is repaid.

As Addison and Ian say, “Velcom to Amerika!”