Re: What to do ?
You can choose your friends (you want them to feel like family), but you cannot choose your family (you want them to feel like friends)!
Trust is an indispensable part of genuine Aikido practice. There is simply no way for that trust to exist for you in your current dojo. You now lack full trust in the teacher and in that person. You are training in an art where people can easily get hurt. Without that level of trust and respect, the risks are far to great (in my opinion). This budo "family" is too dysfunctional and too risky.
For you, there is no "good" solution. The safest solution is simply to stop training at this dojo. Your teacher had an opportunity to instill the necessary boundaries that result in a high level of trust amongst the students and the teachers. The teacher's actions, as well-intended as they might be, did not accomplish what should be a necessary condition in training.
If the added costs of training at a new dojo curtail the amount of training that you would like to do, then practice on your own for now. Your safety should be a paramount concern. Allowing that dysfunction to continue to fester by allowing the teacher's "solution" to occur is simply too great a risk that you should have to take.
Best of Luck & Stay Safe!