I'm a coder non-economist also, but have been look at this
for a few months and will take a shot at explaining it.

The way the fed aim to control interest rates is via the
amount of money that they issue into circulation. The
problem is that when the government puts more money into
circulation it waters down the value of the money already in
circulation, thereby encouraging consumption and some types
of investment, and punishes saving by putting money in the
bank. You buy goods so that you have physicals and not money
which is losing value. Thus, it's quite controversial when
a government institution participates in this way in that it
is effectively directing the market.

"Austrians School" economists get particularly upset by this sort of practice where a government manipulates the market in order to steer to an outcome because one of the tenants of that way of looking at the world is that free markets lead to better outcomes than when governments try to manage economies. Frederick Hayek labelled the confidence of being able to second guess the market and manage it towards a desirable outcome "the fatal conceit" and there's a great book about it. Hence the way that Ron Paul (also an Austrian) gets stuck into the federal reserve at each opportunity, particularly over stuff like rate rises.

The other aspect, and the reason that the current
instability is unsettling and that governments and
institutions are doing a lot more than usual to prop things
up is structural.

First - let's look at an example of a crash that isn't
structural. Back when the dot come crash happened it was
pretty simple: a whole lot of people had invested in stock,
the market changed its confidence in that stock, a whole lot
of people lost money. The banks took money in and paid it out and everything was fine. The market functioned. September 11 was the same even though trading floors had been taken out. None of these things changed the nature of market dynamics.

Now one that has been structural: Friedman blames the depression on the US Federal Reserve for failing to honour its responsibility to supply liquidity to banks who were short of it (as the UK government have recently done to try and get Northern Rock through).

The problem with the sub-prime situation though is that the
rot is to do with the core responsibility of banks: managing
risk. Banks take money in and loan it out, and make
judgements about repayment risk to make sure that they make
a net profit. But the change to banking culture that led to
the sub-prime crisis was this: it became popular to package debts in certain combinations and sell them off to a far greater extent than had ever been done before. So you could buy certain packages of debt that had been guaranteed to fit a certain level of exposure. Basically this represents large scale outsourcing of bank's core business. (That's a nasty way to put it though, because in fact when you loan money in any sense you're outsourcing risk to some extent and this has always happened, just not to the same extent.)

The sub-prime crisis over the last year has given everyone
in the banks the jitters because they've lost some confidence in the risk assessments made by banks they have previously exchanged risk with. Worse, they're not so sure about how much other banks know about their own risk and whether they're being entirely square with the market about it. Thus they start getting very more edgy than usual about short-term loans because the other party might not know what its position is or it might become susceptible to slight changes in the economy. And now the US (where most of the bad exposure was) is slipping into recession... meaning more people will fail on their home loans...

The real problem from subprime is that if the banks stop dealing with one another, you can be certain that economic activity will decline further. This will cause less people will be able to pay their mortgages. This will cause banks who are currently on the edge to slip. In other words - ouch. If there is a crash resulting from lack of confidence it will eclipse the actual value of money lost due to dodgy loans.

Thus, from a certain perspective there is some sense in 'the people' via their elected institutions throwing money at this problem, because even though we're not individually responsible for causing it, it's possible we may be able to buy our way out of it and come out ahead of where we'd be if we had to suffer the consequences of a banking collapse. The problem is - if it is inevitable, then we will have spent a whole lot of money for no good cause.

I can't help but think that monetarists have become too clever by half, and that it would be preferable if we were to all just resign ourselves to having ten year economic cycles. Things are much more highly geared now as a result of a prolonged period of good times and if it gets really nasty there will be a lasting effect in people's psyches that actually limits our ability to get out of it (much as there was in the depression where people saved money even when it was in their interest to participate in some consumption). But time will tell. :)