The bank bailout, in easy to understand terms.

The premise behind the bailout is that the credit markets are frozen and banks will not lend. This is true for some banks,, but to understand why, and to determine if the bailout is necessary we need to look at the rot cause.
What you hear on TV is that banks made loans to unqualified borrowers, some of these borrowers are not paying these mortgages, either because the adjustable rate mtgs are resetting to higher rates that they can not afford, or because the value of the property has fallen so far that they owe far more than the home is worth. Both of these things are happening and both are true,
As some people are aware, less than should be I regret, banks work on a system called "fractional reserve". In short this means that should you deposit $100 the bank may loan out $1,000, (it does this using bank checks or electronic transfers or making an entry in a ledger, anything except giving out cash) but must keep your deposit "in reserve" should you want to withdraw it. The catch comes when you do actually want to withdraw it, for then the bank must either raise $100 from another source such as borrowing, selling stock or other assets or reduce the amount of outstanding loans.
Reducing outstanding loans is not easy. If people are paying on time, you cant just tell them they have to pay sooner than their agreement specifies, so most banks will try to attract more depositors by offering higher interest rates, or just borrow the money from another bank that is not near their limit.
Usually, this is just a wonderful process for the banks, they get to make their own money, never have to risk the principle and people pay back their bank checks with real green money (we will avoid the "real" money discussion for now.)
The tricky part is when they have to start "writing down" the loans that are not being paid. This usually happens after 6 months of non-performance. When they "write down" or take the loss, it goes on their books as a loss against their assets, their assets are your deposits, plus any capital investments (buildings, cars, gold etc). for each dollar that is written down, they have to make it up as they would if you withdrew your money, however, the more loans they write off, the less the bank and by definition it's stock is worth. So it becomes harder to raise money. Now here is the kicker, the FDIC watches all this stuff go on and usually doesn't do anything, because they know that the bank has YOUR money in reserve. It only costs the FDIC money if the value of the bank falls below it's "reserve". At that point, or just before, we hope, they step in, seize the bank and sell off it's assets because they have guaranteed your deposit (up to $100,000)
I know this is long, but trust me it is condensed as much as possible.
To prevent this from happening, most banks enter into credit default swaps, which is just an insurance policy that will pay the loan if the borrower defaults. Lehman brothers, for example, (as well as fannie and freddy and AIG) provided lots of insurance policies, so when they started to have to pay off on these policies, they had to pay them with "real" money, not just a ledger entry. (yes, I know Lehman was an investment bank with different rules but it makes a good example and the result is the same) As their liquid assets got smaller, people lost confidence and wanted their money back, which continued this cycle until they were bankrupt.
OK, what does this have to do with the bailout? Well, there are tens of trillions of dollars involved in credit default swaps and derivatives (other similar schemes) and people are having a "crisis of confidence" to borrow a phrase from h.paulson. That is the underlying problem. People aren't sure if their money is safe, and they want it back. The banks are hoarding their reserves because they aren't sure if they wil need them to maintain their reserve requirements and money is harder to get, at least for the banks involved.
Now that you have a very brief overview of the problem, let's look at the proposed solution. $700 billion bailout. Against 10's of trillions, thats not going to solve anything, in fact the federal reserve increased their lending to almost that much just this week. however, as some may already know, there is a clause in the bill that allows banks to hold less reserves. This doesn't put your principle at any more risk, unless it is zero. What it does do is allow the banks to loan anywhere from 33 1/3 times their reserve to an unlimited amount if in fact the reserve does go to zero. You can see why goldman saks and such are reorganizing as bank holding companies.
Imagine if for every $100 you earn, you could go spend 3, 5 or 10 thousand dollars. Imagine is you could spend all you want, and not have to earn anything. That is what this bill will do, and without the bill it will happen anyway in 2011.
That is what this bill is about, forget the $700 billion, it means nothing. It's all about unlimited profits for people that couldn't manage to win with a 10 to 1 advantage. Plus it provides unfettered authority to the treasury secretary. Forget about the oversight board, the people on it are the same people who want the authority.
Let us look at the alternative. No bill. What will happen? Well, some banks will go bust, but you will still get your money. People that have a history of bad credit may have to pay a whole lot of interest on the loans they get, but they will still get them. The dollar will increase in value and oil and energy will decrease in cost as will food and most consumer goods. Of course the govt could continue their spendthrift ways and counter these effects, but it would take a lot of spending to equal what the banks could (probably would) do if they got this authority.
That's basically it in a nutshell. If you want more details, it's out there, just look. For those of you that already know this, spread the word.