Everything you say is true. For the banks, however, the situation has now snowballed beyond the housing market into exposing a multi-tiered liquidity crisis that keeps blowing up in wave after wave.
What we’re now seeing in the major banks and the housing market is, as you say, beyond bailout time. It isn’t just the amount of money that would be required, it is that the market has to correct. A capitalist system has both booms and busts, and without the busts to correct the excesses and mis-allocations, the system (esp. the financial sector) gets further and further out of whack with the real market.
Greenspan and the Fed kept pumping liquidity into the system, something that came to be known as “the Greenspan put.” At some point, the system cannot withstand the pressure to correct the imbalances. We’re there or beyond now.
Would you consider the possibility of a liquidity leak from the pipeline? The leakage collected in pools in Dubai and Saudi Arabia and Tokyo. That leakage is now being shunted back into the system.
The banks are soaking up the leakage before going to the discount window.