Economic Disaster?

The last couple of weeks have been somewhat of a crash course in economics for me as I struggle to understand what on earth is going on, what our alternatives are, and what I would even like for our government to do about the situation. Today, the House defeated the bailout, and afterwards I discussed the implications of this whole crisis with a Republican friend of mine who knows far more about the current situation, how we got there, and so on, and I realized both that it's not all the Republicans' fault (although I still think it mostly is), and that I've actually come to understand a fair amount of what's been happening and why.

One thing that my Republican friend said that does not ring true to me is that people are not paying their mortgages because their mortgage principals are higher than their homes' values. I don't know to what extent that is true, because I have not looked into it and I'm not really sure how to. I suspect, simply on a gut level, that most people who are in foreclosure are so because they can't afford to make their mortgage payments, which is how I come to believing that it is mostly the Republicans' fault. Trickle down economics do not work. In addition, Barney Frank told me (and by told me, I mean that I saw it on TV) that the last Dem Congress before this one, in 1994, authorized more regulation of sub-prime mortgages, but Greenspan refused to exercise his authority. Yes, I realize this leaves some of the blame with Clinton. I'm ok with that. I still think it leaves most of it with the Bush administration. Which, I admit, helps me sleep at night. In the end though, I guess it doesn't really matter which party caused this - there's blame enough to go around - what matters is fixing it.

I'm still not sure how I feel about the bailout. It seems like the framework might be sort of generally wrong. We should be worried about the credit crunch, but it seems to me that giving the companies that messed up a bunch of money, and Paulson, who doesn't seem to have done much to avoid this crisis, a bunch of only mildly checked authority, is the wrong starting point. It seems to me that we should be worrying more about helping the people who are not responsible for this mess. Perhaps we should be spending the money on helping normal Americans afford to pay for gas and those mortgages that have become unmanageable, and so forth. Regardless, I think that $350 billion right now with the likelihood of giving another $350 billion is too much. We're about to have a new Congress and a new President, so I think we should be focusing on the short term, giving some smaller amount of money, and perhaps waiting for more decisive action till January. I'm just worried about what will happen. And frankly, I'm scared of what will happen either way. I'll probably be fine, but what's going to happen to the millions of Americans in foreclosure? Somehow, the silver lining that this whole crisis is catapulting Obama up in the polls is not sufficiently comforting.