"The problem with the economy is that it was full of phony money"

Sounds about right. As I've written before here, the basic problem is that financial institutions were totally over-leveraged-- loaning and borrowing way more money than they actually had. On a personal level this may work-- but when this happens on a systemic level, it's trouble -- particularly when the bills start coming due.

Giving some money to irresponsible financial institutions is not going to solve anything-- there is just way too much phony money that needs to be flushed out of the system. A few hundred billion is just a drop in the bucket compared to several trillion dollars in artificial money from the housing bubble and other capitalistic scams that needs to be shed. So of course the "bail-out" is floundering. The great Ponzi scheme is unraveling-- but sadly no one in power wants to call it what it is.

The bigger question, assuming our civilization doesn't completely collapse, is whether we can ever come up with an economic system that is actually reasonably SUSTAINABLE-- and not dependent upon endless puffing up from phony money.