Many small businesses that need new or renewed loans now (to get some equipment and keep their employees) can't get them, no bank wants to touch them if they are related in any way to housing or support housing-related businesses. The interest rates you are talking about lowering have no impact at that level. The second problem is unwilling borrowers. John Doe isn't going to rush out to buy overpriced real estate which has farther to fall. There are two circumstances in which he will: real estate appears to bottom out or interest rates appear to bottom out and are starting to rise. We are not close to either of those conditions.
Instead, at least these two things will happen: banks and investment houses will use their debt derivatives as collateral and get lower rates, which will ease the liquidation pressures. Second, speculation and malinvestment will continue and ultimately accelerate as the lower and lower rates will allow greater and greater carry trade opportunities. In general that will do nothing for sustained economic growth.
"There are two circumstances in which he will: real estate appears to bottom out or interest rates appear to bottom out and are starting to rise. We are not close to either of those conditions." and IMHO, that's about a 30-35% correction in asking price for a (new) home in what once was the hottest 30-40 markets and for the overnight prime to readjust to something near 7% and sit there for a while. 30 year fixed maybe in the range of 8-8.5% to weed out the unaffordables and maybe even a serious curtailing of the ARM (only to top credit rated borrowers) as to steady returns in the banking industry.