Other financial writers and commentators have written about this, and I think they are on to something.
The problem right now is not a shortage of liquidity. There is massive liquidity in the system. The problem is the lack of confidence in value indicators – i.e., no one is certain that the quoted prices for financial assets are anywhere near their real underlying value.
The “bail-out” of Bear Stearns was a necessity. Had they gone under it could have been the start of a melt-down. However, the bail-out causes problems of its own. If JP Morgan was only willing to offer $2 a share for a company that two days before many people thought was worth $30 a share (and whose HQ building on Madison Avenue is probably worth $8 per share) what does that say about valuations?
Putting more money in the system is a necessity, but it doesn’t help that much. It’s like pushing string or herding cats.