The US government does not need to buy anything to resolve the current financial crisis. Loan defaults have created uncertainty. So remove it. The immediate problem can be resolved with modest loans to some borrowers.
It does not need to buy goofy securities.
It does not need to buy equity in financial companies.
It does not need to buy 'bad' mortgages.
It does not need to immediately put up a large sum of money.
It just needs to make loans to distressed mortgage borrowers.
It just needs to keep the loan payments going to the lenders.
There is a lot to be fixed. Not now.
However, the immediate problem is to get the money flowing from the borrowers again, and head off any new defaults.
All that takes is a direct government loan to the borrower.
No other parties need to be involved.
You do not have to buy the houses. The distressed borrowers don't need the whole mortgage off their hands, just the extra expense from an increasingly expensive variable rate loan. What they can not pay of this increase, could be made up by a government loan.
Buying the house is hundreds of times more expensive than granting a loan.
Buying the house requires immediate cash for the whole mortgage.
Making a loan for the next few month's payments will use only 1% as much government cash.
Not a free government loan, but one that they can not get from a bank. And a loan which they will eventually repay. The lender was originally happy to have the principal tied up for 30 years. It is the cessation of payments that screws them up.
The government terms could for instance delay repayment for 5 years or so. There is no initial expense to the government, which is only lending out a fraction of the higher monthly payment. This will accumulate until the borrower can start to pay it.
Very much like college loans work.
The only interaction is between the government and the borrower. The lender gets no new money. Just confidence that the payments will not stop.
Then all those securities that no one knows how to value will at least have the value they had last month, last year. And that was good enough.
A 30 year mortgage had 360 payments. The government would have many months to come up with more comprehensive solutions.
All without panic.