The argument among pundits, the administration and Wall Street is that if we do nothing, there will be dire consequences. Therefore, although they all say they hate to do it, they favor and insist on the government bail out. To make it a bit more palatable this time around, they've added increased FDIC insurance and some tax cuts. While the FDIC insurance and the tax cuts are good ideas on their own, the rest of the bill is still bunk.
The government argues that they'll make all their money back and then some. If that were true these securities would not be "toxic waste" on the banks balance sheets. The government is claiming that they, professional bureaucrats, are better suited to value these things than lifelong professional bankers. We have not been told the nature of the "mortgage backed securities". If they are backed by a random hodge-podge of mortgages, I'd say they're probably right. But if that were the case, there would be a market for them. They are obviously backed by mortgages that nobody expects to get paid. As for the underlying real estate, again: which real estate? I can tell you as someone who used to fix houses after people had been evicted, the cost of repossessing and fixing them when added to the loan balance can be far higher than the appraised value of the home, making the mortgage absolutely worthless.
The government also claims that credit will dry up if they don't "inject capital" (give away your money) to the system. In a sense that's true. A good portion of this economy has been built on people buying things they can't afford. That is in danger of coming to an end, or at least being severely curtailed. The economic growth figures aren't going to look so good for a while. People will have to work with their actual income instead of what they expect to earn over the next ten years.
It's important that we allow the market to play this one out for the simple reason that we have to see what happened. We have to unravel this thing so we can learn from the mistakes. It will not cause armageddon, we will not go back to the stone age. I've been flat broke before, it's not as bad as it's cracked up to be. Nobody takes you out back and shoots you for making honest financial bad calls. You just start again and try to be smarter about it going forward.
I don't know if Congress will have the courage to do the right thing. I hope they do. Sweeping the systemic problems under the rug just preserves the mess for another day.