@okie,
Being deaf, I'm spared much of the political analysis by the partisan commentariat. I don't doubt that both Parties will be accusing the other of both misfeasance and malfeasance. Fixing the blame may be emotionally satisfying, and provide "justification" for political positions, but is otherwise pretty much useless. The crux of the matter isn't how we got into this fine mess, but rather what is the best, most practical and probable way of getting out of it.
The Democrats seem to favor more government regulation and spending paid for by increasing the tax load on businesses, and people who have wealth and property. They desperately want to retake the White House, and expect that extravagant promises to benefit low and middle income citizens at the expense of those bad old rich guys will win the day. The GOP, on the other hand, seems to favor less government regulation and cuts in Federal spending. The GOP is also courting the working and middle classes, who dream of themselves as someday having wealth and property. The Republican approach is to encourage investment and business with the expectation that increased productivity will produce more jobs, tax revenue, and general prosperity. Both Parties must cater to the lukewarm political feelings of most Americans. Congress is continually deadlocked as the two Parties jockey to appear better than the their opponents to the public.
Even though the nations leadership seem to agree that a large bailout is our best bet at the moment for a speedy recovery, the exact nature of that bailout is very much in dispute. The Democrats ideologues have one approach and the GOP ideologues have a different one. Personally I favor the GOP approach, but the approach taken is a matter of personal philosophy. The House leader's remarks before the vote casting blame certainly didn't encourage minority members to cross the aisle on this vote. In the end though, I think the Bill failed because too many members of both Parties were unconvinced of it. Significant numbers of both Parties voted against the Bill. Apparently the representatives were bombarded with objections to the Bill by their constituencies. Congressmen aren't known for either their brilliance, nor their courage, so the safe thing was to vote "nay". Who knows, that might have been the "right" decision not only politically, but for the nation's well-being as well.
Fanny & Freddy are both Federally chartered to handle/bundle home mortgages with the idea of spreading the risk of default. Banks sell their loans to Franny & Freddy (and other investment organizations like Lehman Bro., Bear Stearns, etc., who in turn used those loans as a lure to investors). The lending banks have almost zero risk in this system, so they have no reason to screen out all of the questionable borrowers. The biggies, Freddy & Franny and the host of investors around the world, made big bucks as long as the housing boom lasted, and so they operated from underfunded reserves. When the sub-prime market began to crash, there wasn't enough liquidity to cover all of them and one institution after another has fallen. Panic set in, and no one wants to risk what liquidity and cash they have so interest rates have soared and only the highest rated borrowers can qualify.
Business, like the old farmers of yesteryear, can't hardly operate without a ready line of inexpensive credit. No credit, and they have reduce operations to survive. Survival often means cutting overhead to the bone, and letting workers go. As unemployment roles rise, and so far that hasn't happened, the amount of money available decreases and people buy less. Its a vicious cycle, and almost everyone will suffer to some extent. A major problem is the lack of confidence, fear of a plunging economy that causes everyone to stay awake nights.
Will a large infusion of Federal money easy the credit crunch, and let those major financial institutions recover? No one really knows, but the smart money is that it's the best bet available at this juncture. The administration favors a $700B bailout, and the leadership of both Parties and their Presidential candidates favor some sort of Federal bail out. Apparently, a very large portion of our citizens are against adding approx. one trillion dollars to the national debt. There are worries that the "scoundrels responsible for the mess" will prosper, though exactly who the scoundrels are and what their crimes were is debatable. The live style and choices of Americans for many decades has been reflected in how the Congress and both Political Parties have acted. Very few believed that moving from a saving to a credit society was a bad thing, or even very risky.
"Gold Bugs" have long warned of the dangers of that currency without gold backing, but that isn't a good choice either because our economy, the world's economy, needs more currency than there is gold to back it. In place of gold we have relied upon strict government control over the currency ala Mr. Greenspan & Co. They've done a great job, but didn't foresee how far and how dangerous mortgage lending had drifted toward unrealistic shoals that would eventually tear the bottom out of the wider economy. The system IS sound, but it has taken a hell of a beating over the past year, and confidence here and abroad has fallen to disastrous levels.