Hmmm it's a little more complicated than that but...
The main problem atm is that banks refuse to lend people money, including other banks. This stagnates the market as money is no longer moving about. Mortgages have gone up substantially, pricing people out of the market so house prices have dropped due to lack of people being able to afford it. Less mortgages means the banks have less money to lend so stop investing/moving money around even more and the whole market basically stagnates. This has the effect of bank shares plummeting, like they have, which has an adverse effect on the rest of the market and we see the sharp drop in prices we have over the last few months.
The investment in the banks by the government will allow the banks to release more capital/money and get the ball rolling again, with banks now having money to invest/loan/move etc and gets the market active again. As banks start moving money around, mortgages will drop, share prices will recover (as indicated by yesterdays rise), new mortgage/loan deals will appear and everything comes full circle and starts over again. Thats the hope anyway and is the reason for it.
The main cause of the problem was cheap mortgages and excess loaning to the sub prime market, mostly by US companies but that hasnt stopped it affected us here as many banks over here borrow/lend to US markets. Once the US government gets their finger out their arse and invests some money and guarantees savings etc like our government has it SHOULD stabilise the market and allow it to settle a bit. I doubt it will ever go back to the extreme prosperity we have seen over the last 3-4 years (and longer) but it will settle back down again. I doubt very much the banks will get so greedy again and play around with their and other peoples money so reckless so I doubt a 4% mortgage is likely to appear but i don't think it will get any worse.
If the measures they are taking at the moment work, which they should in theory, and as long as the rest of world gets on board with what we have done and do it in their own countries I wouldnt be surprised to see the market sort itself out by xmas/early next year. Dont pay too much attention to the sensationalism on the news, its not another 1929 great crash or what happened in the early 90s, its actually a lot less problematic and easier to solve.
Of course this is just how i read the situation and i am no economics expert...