Fannie Mae, Freddie Mac, AIG, Bear Stearns, Lehman Brothers – it’s all adding up to become one of the most historical financial times America has ever witnessed. And with what feels to be a huge, festering financial wound, America will need the equivalent of a Wall-Street-sized-Band-Aid. And some antiseptic – the kind that burns. Because only when it burns do we know it’s working.

The Bush Administration has proposed a whopper of a plan – a $700 billion injection of cash straight to the source of pain – the banking industry. Though it was rejected yesterday by the House (225 to 208 vote), something close to the original proposal will still likely be passed soon. The bulk of the money is earmarked to buy the debts of battered banks. Why take on their debt, you might ask? One of the popular theories here is that some of that debt will be bought at such a low price that it could return a profit in the future.

The next plausible question is – where is this new money coming from? Who’s got the $700 billion? Taxpayers do. According to the New York Times, “Divided across the population, it would amount to more than $2,000 for every man, woman and child in the United States.” Burns a little, doesn’t it? It gets better.

If the government (read: we) chooses not to step in, the disease could continue to spread. Right to where it will start to hurt said taxpayers individually, instead of big insurance companies. It could begin to affect retirement funds (your 401K), more banks could fail (mattresses are for sleeping, not cash) and many, many American jobs. At a news conference on last week, President Bush spoke succinctly: “I will tell our citizens and continue to remind them that the risk of doing nothing far outweighs the risk of the package, and that, over time, we’re going to get a lot of the money back.”

In becoming a bank to the banks, the government may institute some new regulations as a sort of preventative measure to ward off future problems. New regulations will be key to thwart any chance of more financial crises.

The overall hope is that this bailout/bandage for the financial industry will begin to put the housing industry back on the right track. Not doing anything could make things worse. If you’re still mad about paying for this as a taxpayer, think about the dominoes falling this way: the government is providing stability by doing this. The stability will increase liquidity in the market place, making money move around as it should be in a healthy economy. The liquidity will eventually turn into more affordability in the housing market. Programs will be created for people to buy homes and the housing market will eventually get back on it’s feet. At least, that’s the hope for this big Band-Aid. Keep in mind this will not happen fast. It took a while to get here, it will take a while to get out.

Congress is scheduled to meet again on Thursday. Doing something is still a top priority and they’ll likely find a happy medium soon. Though it appears the newly proposed “economic stimulus” does not yet directly assess struggling homeowners, that might change as they continue to work on it. Congress is talking it over and potentially adding new provisions. Some expect an agreement could be by the end of the week. Time heals all wounds, right?

So, as Congress puts in the long hours this week to refine the package, check back here for updates. Or, take two of these and call me in the morning.