Federal officials are reconsidering the original bailout plan: Treasury Secretary Hank Paulson's proposal to have the government buy up the bad assets from banks. The revised idea, according to the WSJ, would be to federalize the real estate crapola so that banks could clear their books and be more willing to lend again.

The discussions, which have intensified in recent days, show how the rapid deterioration of bank assets is outpacing the government's rescue efforts. Banks are now struggling not only with the real-estate investments that sparked the crisis, but also with the car loans, credit-card debt and other consumer debt that has taken a hit with the faltering economy.

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Goldman Sachs economists estimate that financial institutions and investors world-wide will ultimately realize $2 trillion in losses on bad U.S. loans, but have recognized only half those losses so far. That scares investors who might otherwise give banks needed capital, and makes banks reluctant to extend new loans. Regulators say they worry that the only remaining source of capital for banks is the government.

Paulson gave up on the bad asset idea in favor of investing directly in banks - and we've seen what a success that's been. Sounds like still more spaghetti to be thrown against the wall.