A major step is the arrangement to purchase "toxic waste" from bank balance sheets. Nobody wants the stuff now, but the idea is that it will be worth something once all the fear subsides. The government is exploring a trust that would take bad loans off banks' hands so that the banks have cash to lend (and they can spruce up their balance sheets as well).
Paulson claims that all of the interventions will be far less costly to you and me "than the alternative". Presumably he means that without government intervention, markets will deal with insolvent institutions much more harshly. Terror and fear would continue to spread, and we'd spiral into something worse than what is really needed.
What do you think? Tell us about it in the comments.
Further reading:
- WSJ Summarizes Current Bank Rescue Situation
- Bloomberg on the Economy: Neal Soss provides insight (MP3 File)