The housing market has transferred trillions of dollars from investors to anyone who sold or borrowed against their home in the last five years. The problem with the transfer is that 90% of the people who got the money spent it on worthless stuff (for example, the homebuilders who have built millions of extra houses), so the money cannot be recovered by anyone else.

The problem that the Fed has right now, is that they set the price of money for banks. However, they cannot control the demand for credit, nor can they control the value that banks put on collateral. Right now we are in a self-fulfilling credit contraction. Banks require more collateral for a loan (no more 100% LTV mortgages) which in turn makes the collateral worth less, which causes banks to require even more collateral or charge higher rates. This cycle will end when people are again able to pay with cash and not credit.

Bottom line: I believe that the Fed can prevent a crash, but not a bear market or a recession. Remember 2000? The Fed cut rates to 1%, giving us one of the mildest recessions on record, but they still were unable to prevent a massive bear market in stocks.