I don't get it

I don't understand this financial crisis. From what I've been reading, I wonder if anyone does. So far, Bear Stearns was purchased before it went under; Fannie Mae, Freddie Mac, and AIG have been taken over by the government; Lehman Bros. went belly up; Washington Mutual was just purchased by JP Morgan in a forced sale; and now another $700B is needed in the markets to avoid financial meltdown. The Bear Stearns action cost the Fed $30B; Fannie Mae and Freddie Mac guaranteed about $6 trillion in mortgages; AIG is costing the Feds $85B, and WaMu had around $300B in assets (read mortgages) of dubious value. So far the feds have spent or are planning to spend a trillion dollars. To put that in perspective, the GDP of the US is around $13 trillion, and the federal budget is close to $3 trillion.

And this is all supposedly due to shaky loans in the mortgage market. There are around $12T in mortgages out there with approximately 1% in foreclosure, and another 2-3% are in arrears. So assume that 3% get foreclosed. That makes $360B in foreclosed mortgages. But wait, there is some value to the assets behind the mortgages. Assume for a moment, that even with the fall in property values, the houses are only worth 1/2 of the outstanding loan amount. That makes a shortfall of $180B, say $200B just to be on the safe side. Why is a trillion dollars needed to fix a $200B problem?

Yes, these mortgages were sliced and diced and reassembled in various financial instruments which I'm sure no one understands, but unless the markets are a total Ponzi scheme, $200B shouldn't be that big a deal in the whole scheme of things.

Are the feds propping up failing mortgages? Are they propping up the Ponzi scheme? Or is there more to it?

Like I said, I don't get it.