Just to add to what Scott is saying, the Fed bailing everyone out by lowering interest rates is likely to have a lot more negative consequences than positive.  People who made risky investments and securities and homeowners that bought more than they could afford have to take their lumps now by keeping rates where they should be.  Artificially lowering the rates might help investors somewhat and not likely help overspent homeowners, but it will make life a lot more painful for all of us in the form of inflation.

The other looming problem we have is that if we continue to keep interest rates low and spur inflation, we risk having Japan, China, and other countries dump their reserves of US dollars.  This was called "the nuclear option" recently with regard to China, but they're not the only country that does it.  Most of these countries have been gradually increasing their supply of Euros as a reserve currency.  If the US dollar starts to become rapidly devalued because of inflation, they may be tempted to dump even more dollars into the international market.  This will give us rapid inflation and decreased spending power relative to the cheap goods we buy from China and other places.

If you want to see how to ruin an economy after rampant real estate speculation, just look at Japan for the last 15 years starting around 1993 when the Bubble Economy burst.  Everyone speculated in real estate thanks to low interest rates and indirect encouragement from the government and central banks.  The boom ended, lots of investors got burned, and a lot of banks were stuck with bad loans.  Since that time, the central bank has kept interest rates artificially low and has been working with banks to keep their bad debts hidden and off the books in one way or another.  The result?  The Japanese economy has been in a perpetual slump for last 15 years.

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