This is something that the bubba's of the world will never get. Be it their idealology, be it the fact they lack the sophistication to see the interconnected complexity, or the fact they don't want to try something, have it be ineffectual and retry it. This is and has always been about the local bank and the mortgages.
I come at this from obviously a scientist perspective as well as a more progressive. Believe it or not those things work well together. First, I believe you try something. You observe the results and make changes as needed. AS a pogressive/liberal my belief is that when things are important and hurting people, the government is the only entity that can intervene. Remember, enemies are also domestic and not always living beings.
First understand this, the problem resides with banks and their holding of mortgages. Because they are regulated, banks are not issuing loans to other banks, businesses and people right now. What normally has happened is that some Wall Street firms, foreign governments/investors, Fannie Mae or Freddie Mac would purchase these mortgages. Things some how got deregulated that allowed Fannie and Freddie to than sell these to Wall Street or have all of Wall Street be able to buy these directly. This has frozen. This means banks won't lend.
Additionally, this is hurting governments that depend on property taxes. They won't be able to meet their payrolls/services. That means they'll have to borrow, but guess what, they won't be able to borrow. Further catastrophe. Actually I'm reading at CNN that califorinia is at this point.
But bottom line is that this is hurting people. People have to come up with more for down payments, pay higher fees/closing costs, pay higher interest rates to get loans that they would've qualified for a year ago/historically.
Business, I have learned, use short term loans to buy things to sell or improve themselves and for payroll. They can't do this. So they have to lay off employees. They can't order new inventories. This affects the manufacturers because they can't sell their products (and if you have money), thus you can't buy it from the stores. The factory has to lay some one off because they have to halt production. The little lunch shop has to lay people off because the factory workers aren't coming in. Worse, the people aren't collecting pay checks so they can't pay back their loans further exhasburating the problem. It's a vicious circle. That's relatively simple.
The free market is an idea just like democracy and communism. The ideal is obviously not the same as the implemented version. An ideal free market would still buy these loans from banks because 90% of everyone is still paying on them. However human fear and greed are involved. The problem is no one knows when they buy these large bundle of loans what the bad 10% are. Wall Street is the way these loans are financed through bonds (mostly) and stocks (some what). No one is buying these. Now that means nothing is moving, so things are freezing up.
The Treasurery Secretary made a plan. Make me a super investor with no oversight. Congress said, not so fast. Here are the rules. You only get so much money. You have to come to try to apply it to home owners and banks with mortgages. Etc. It also includes disaster assistance for Iowa, Texas, Oklahoma for floods, hurricanes and tornadoes. Is it perfect? No. Will it work? Don't know. On short notice, it is the best we got that'll get everyone at least moving a direction.
Sadly, our leadership FAILED MISERABLY at explaining this. Actually, knowing who our leadership is, Bush, its not suprising that it failed. He's got a track record of failing at business and government.
So why take this action? First, history. Herbert Hoover. Bush still wants to avoid topping the list that Hoover usually is mentioned on, although he still has a shot at being there. More history, the do nothing, let the market fix it was very popular response in the 1880s till the 1920s for people named Vanderbilt, Rockerfeller, Morgan etc which predates Federal Reserve and deficiet spending. We have a middle class now. We don't want to regress to the robber barrons who'd be replaced by athletes and celebreties are the only ones who can afford anything. Next, and a bit more relevant historical example is Japan in the 1990s. The banks in Japan basically stopped lending saying people/businesses were overextended. The Parliment voted to do nothing. Japan's economy has basically been in a state of minimal growth, job loss, and personal bankrupcy ever since.
Now, social scientiests/economists will say that they are true scientists. That's not true. While they have theories, study patterns, test hypothesis and revise them based on their observations, they fail the final aspect of the scientific method. The ability to make predictions accurately. While I may have historical actions, this won't predict actions taken now and how they'll work. However, we can objectively state that if nothing is happening, and it's making it worse, a logical rational person could say "doing nothing will make it worse". So doing something should change if we do something. This, for the Sarah Palin's of the world, is the weak point.
The scientist in me says that's equilibrium-like. Disturbing one side, should create a ripple to affect things so it doesn't achieve the maximum settling and no action taken can reverse it. Side note, equilibrium in biology means death unless prefaced as steady state. I also believe in network biology and economics in a global scale borrrows a lot from network theory which is borrowed really from computer science. A small change at specific hub, can feed through the network to change the entire dynamics in unknown and remarkable ways. But if we don't do the right thing, guess what? We can always go back and change it.
The progessive says by directing that at the home owners, by allowing foreclosure avoidance, and banks to lend people money, should be sufficient. will it be immediate? Nope. But it will happen. Either way, it avoids the possible greater moral hazard of leaving people without jobs unable to pay what they owe further exhasburating the problem. We also avoid putting it off till later.
People who oppose this are for job losses. They are for people having their homes foreclosed. They are for governments coming up short, closing schools, not repairing road and bridges (Minneapolis/St Paul anyone???) etc. To punish the greedy and the fearful, they want to punish us all. ENOUGH. Grow a set. Sacrifice for the greater good. Suffer briefly so you don't have suffer permamently. I'm running out of euphamisms.