The Fed and Treasury could see what was happening in the markets and went to Congress to get the money. They didn't know exactly what they were going to do, or what would work to solve the problems, but they knew it was going to take a lot of money to fix it.
No one is talking about the real problem, which is the derivative contracts that have to be paid, based on certain occurrences in the markets. The investment banks are terrified that the contacts they have will not be paid, and they don't trust anyone to give them their money back. They are also terrified by the contracts they have written which may cause them to pay.
There is no mathematical solution to this problem, and throwing money at it blindly won't help either. Ultimately, the only way to deal with that mess is politically. Meaning that the contracts will have to be declared null and void, with some consideration being given to both parties. This is going to be a massive headache for the legal system, but if it isn't done, the system will probably hyperinflate.
In the meantime, different groups are presenting different plans which address their specific sector. For example the treasury has control over the money, but the FDIC wants to use some of that $700 billion to help home-owners subject to foreclosure. They get the borrower and lender together and re-work the mortgage so the owner can stay in the home at a lower payment. The lender looses, but avoids the home going into foreclosure and suffering a major loss. This also gets the Mortgage insurer off the hook to pay off the house, which will alleviate some of the pressure from those derivative contracts.
What is amazing to me is that there isn't more of a specific plan or direction. This money should come with strings attached, meaning no money for bonuses if your co. is getting assistance. Any private companies supported should have to commit assets in case of default. Not all businesses should necessarily be saved either. GM is bankrupt because they built a lot of hummers they couldn't sell, instead of gas-efficient cars. Should the taxpayer be forced to subsidize incompetance? Maybe one of the strings should be the guy who made the decision to build all those gas guzzlers gets fired, along with the one who decided not to import their 70 mpg diesel engine for use in the US.