I'm no economic expert, but just listening to the arguments presented by both sides on the regulation vs. deregulation issue, it appears to me that those blaming regulation solely for the mess are driven more by ideology than the actual facts. Regulation does not necessarily lead us to this point. BAD regulation was part of what led us here, but that doesn't mean you scrap it, it means you fix it.
This is all secondary to the bailout itself, however. We are not going to recover from this until housing prices stabilize. But that can't happen right now because banks are not lending, and no one can buy a house without a loan. And if there's no one to buy all these available homes, then the prices are just going to keep plummeting, way past where they would if there was some credit available for mortgages. That's why we need to inject some liquidity into the system. It's a bandaid, yes, but if it can allow the banks to get back on their feet and start lending us money again, then the housing market can start to recover.
And think about what happens if we don't do something. If companies can't get loans to make payroll, we're looking at massive layoffs. Without jobs, more people with previously good credit are going to start defaulting on their mortgages, which will deepen the crisis even more. Obviously injecting 700 billion into the economy will lead to more inflation. I don't think anyone has any delusions about that. But this is triage. Sometimes you have to do something that will have negative effects in order to save the patient's life. I say put off inflation until our banks are back on their feet and then tackle it. One problem at a time.