1 hurdle down, many more to go for the economy

— -- The extraordinary $700 billion financial rescue plan that President Bush signed into law Friday will begin the process of healing a battered financial system. But it's only the start of a journey that grows longer and more difficult with every turn in the road.

"This measure is an important step, but there is a possibility it may not be enough," says Frederic Mishkin, a former Federal Reserve Board governor.

The Emergency Economic Stabilization Act makes the Treasury Department the buyer of last resort for unwanted assets sullying financial institution balance sheets. The aim is to take the investment debris off the banks' hands, thereby freeing them to resume normal lending.

To free-market purists, it's an unpalatable step. But the need for action is unmistakable. Last week, credit channels were so impaired that even blue-chip companies such as General Electric found it difficult or unusually costly to raise short-term cash. Even the legislation's supporters acknowledge it isn't a cure-all for what ails the American economy. Too much damage has been done, and growth is likely to be either non-existent or anemic until 2010.

Despite widespread unease over the use of taxpayer money to salve Wall Street's wounds, it also seems virtually certain that lawmakers will in coming months confront anew demands for even greater government activism. Critics say the new federal legislation just won't do enough to resolve the banks' chief problem: a crippling shortage of capital.

Already, prominent economists across the political spectrum are floating proposals that envision mammoth government spending beyond the $700 billion bailout. Among them: shuttering insolvent banks and providing taxpayer cash to those that can be saved; a temporary unlimited government guarantee of all bank deposits; or even direct financial aid to individual homeowners to ward off foreclosure.

"This act alone is not really going to resolve anything. Eventually, the government is going to have to do more," says George Magnus, senior economic adviser to UBS in London.