The headlines on the new bank-bailout plan are a clear signal of its weaknesses: A big headline number with little new behind it. Up to $1.5 trillion refers to $500 billion of “public-private partners’ help” funding that “seeks” to purchase toxic assets from banks and the $1 trillion refers to the potential for a highly leveraged Federal Reserve facility aimed at buying existing/new(?) loans to consumers, students, and real estate.

These efforts all require that the price of risky assets be bid up from existing levels with the help of the Treasury and the Federal Reserve funding and guarantees. The higher the price, the bigger the risk to taxpayers and the Fed. If home prices don’t stop falling—as they are not likely to do—those risks will only grow larger.

It’s all about money. The new plan has to take some chances with public money, but no more is on offer right now. The plan, at best, is a good effort at starting the process which demonstrates that Congress is going to be asked for another trillion dollars or so when it becomes painfully clear over coming weeks that the current effort is inadequate to deal with the huge hole in bank balance sheets.

– John H. Makin is a visiting scholar at the American Enterprise Institute.