I didn't suggest they would as things stand now. My point was that if things got so ugly that banks and major hedge funds were in danger, they would more or less be forced to act, as Greenspan was repeatedly in the '90's, most conspicuously in '98.
Anyone who doesn't think the stock market would jump after a 75 BP cut wasn't around back then. As for its effect on CDO's, they are financed at short term rates. In addition, a steeper yield curve is a tailwind for the financial sector.
As for the dollar, there would be tremendous political support for weakening it versus Japan and China. Asian emerging markets might get hit in the cross fire, but that's why they are emerging markets. The europeans would be under a lot of pressure to cut their rates as well.
It might be good economics for the Fed to sit by and let the system wring out its excesses. The Fed however still carries the institutional scars from the S&L crisis and the fallout from that in '90-'91. All the major money center banks were insolvent and could have been shut. It taught the Fed that it is far more expedient to throw money at a potential crisis and hopefully defuse it or at least defer it rather than face it head on.