These loans can't be sold in the current market. But if somebody tells the banks they don't have to sell these loans at distressed prices, and therefore don't have to take a big hit on profits and capital, the banks will enjoy plenty of breathing room to reap the benefits of the upward-sloping yield curve.

Let the banks hold these investments over a long period, rather than force them to sell now. The economy will get better, as will housing and other impaired assets.

You could even have a two-tiered disclosure process: Accounting purists could be satisfied with a full mark-to-market disclosure, while regulators could forbear capital-standard rules that shouldn't apply during this period of severe distress. As a result, banks would be in better shape to pass the Treasury's new stress test and wouldn't need new TARP capital injections that further extend taxpayer liabilities.

Think of this: As net interest and profit margins rise while the yield curve is upward-sloping, higher bank profits can be used to replenish capital. Meanwhile, government authorities can cease and desist -- not only their punishment of private-equity shareholders, but also their clumsy attempts to control various bank operations (compensation, golf outings, means of transportation, etc.). Then, if bankers are so dumb they still can't make money with zero borrowing costs, the FDIC should shutter them and sell them off piece by piece.

Right now, there are promising signs of mark-to market reform, with bipartisan support in Congress. New SEC Chair Mary Shapiro says she's looking into it, as is Robert Herz, the head of the Financial Accounting Standards Board (FASB).

So let's have a shotgun marriage. Let's wed the upward-sloping yield curve with mark-to-market reform. It sure beats another trillion in taxpayer dough, or a federal takeover of our biggest banks.

It all seems like such a simple solution.