Paulson, Bernanke Stand Their Ground

Besides the auto heavyweights, states coping with budget deficits are also seeking a piece of TARP. Others, like Federal Deposit Insurance Corp. Chairwoman Sheila Bair, are pushing for swift aid to homeowners who are struggling to make mortgage payments. Bair recently broke with the administration to advocate for using $24 billion to help some Americans avoid foreclosure. Before Congress on Tuesday, she said that the U.S. is "clearly falling behind the curve" as foreclosures escalate.

But, by and large, the Bush administration has opposed any plans that include automakers or mortgage-restructuring. Officials say future decisions about spending should be left up to President-elect Barack Obama, his advisers and the new Congress, who will take power in January.

George Simon, a partner in Foley & Lardner's Financial Crisis Response Team, says that supporting the housing market would be a good strategy, because it would help both the consumer and the bondholders behind the mortgage. He believes state governments will have to enact their own fiscal discipline without federal aid, though the auto sector will likely receive support.

But Simon asserts that a strategy is unlikely to emerge, or be approved, before Obama takes office in January.

"The Republicans are pretty staunchly not in favor of it, the administration is not in favor of it, so it seems like nothing is going to happen in the short term," says Simon. "The Democrats may propose a bill, but it's unlikely to pass."

Jeswald Salacuse, a professor of commercial law at Tufts University's Fletcher School, says that in light of the ad-hoc approach to the financial crisis so far, that might be a blessing in disguise. The financial crisis requires a solid solution that is crafted after carefully assessing the situation and spending dollars in the most effective way to help the economy, he says. An immediate solution might provide less bang for the buck.