Wall Street bailout likely to continue

The Obama administration on Thursday sent its clearest signal yet that it is prepared to extend its $700 billion bailout for Wall Street for another year, even as lawmakers said they were frustrated that not enough was being done to help the average American.

"We still have work to do," said Herbert Allison Jr., the senior Treasury official in charge of the bailout fund.

While some economic indicators suggest the nation is beginning to heal from the worst crisis in decades, experts warn that the market is fragile. Hundreds more banks are expected to fail in the next few years, largely because of souring loans for commercial real estate.

Allison said further government intervention in the market may be necessary because of the decline in commercial real estate.

"In this context, it is prudent to maintain capacity to address new developments," Allison told the Senate Banking, Housing and Urban Affairs Committee. "By bolstering confidence, having such capacity may actually reduce the need to use it."

Congress approved the rescue plan, known as the Troubled Asset Relief Program, with bipartisan support in October 2008 at the request of then-President George W. Bush during the height of the financial crisis.

The Treasury Department has the option of extending the program to October 2010 so long as it provides a justification to Congress before the end of the year.

Former Federal Reserve Chairman Paul Volcker said Thursday that by designating some companies as critical to the broader financial system, the plans create an expectation that those firms enjoy government backing in tough times. That implies those financial companies "will be sheltered by access to a federal safety net," he said.

Lawmakers should make clear that nonbank companies will not be saved with federal money, he said.

TARP, as the program is commonly known, is credited in part with pulling back the financial sector from near collapse last year. But its infusions of money into huge banks, the giant insurer AIG and the auto industry have been unpopular with the public and in Congress, where lawmakers are under pressure to save jobs and stop foreclosures.

"We can get billions out. We can buy General Motors overnight, but we can't help a homeowner," said Sen. Mike Johanns, a Nebraska Republican.