After stepping in to rescue progressively heftier Wall Street giants - Bear Stearns, Frannie Mae & Freddie Mac, and AIG - the Fed turned to Congress asking it to okay a bailout to - hopefully - end all bailouts. Congress complied in early October '08, greenlighting the Fed to give up to $700 billion (to be given in three installments) to ailing financial firms.
Although the bill looks like it's a bailout for irresponsible financiers, the rationale behind injecting money into Wall Street is that it will ward off a credit freeze - which could push us all into a deep recession. With financial firms spooked by toxic securities, they are increasingly worried about extending credit to other firms; a credit freeze on Wall Street eventually translates to dried up credit for the rest of America. By cushioning the cash flow of weak firms, however, a bailout hopes to give Wall Street the confidence to start lending again.