Stiglitz indeed has the answer for toxic debt. Let the original owners sell it! Why should taxpayers take responsibility for these huge losses?
Under the "Good Bank" scenario, the operations of the bank would be nationalized and the owners and creditors would receive these toxic assets as payment for their interest in the bank in a holding company. The toxic assets would be disposed of by the original owners, not the taxpayers and they would bear the loss, or, if you are naïve, the gain, from these sales.
This solution, whereby the original owners get the "Bad Bank" instead of the taxpayers the "Good Bank," is the only way taxpayers can escape trillions of dollars' worth of subsidies, kill the Zombie Banks and move forward with a solvent banking system.