Treasury Defends Bailout Response

The Treasury Department is defending its management of the $700 billion bailout fund, amid criticisms about confusing shifts in strategy and deficiencies in tracking how the money is being used.

Writing in response to requests by the Congressional Oversight Panel for clarification of the Troubled Assets Relief Program's goals and achievements, Treasury issued a point-by-point justification of its intervention in the financial markets.

The document provided details of the deterioration in credit markets that the Treasury said required a shift in policy away from buying troubled assets and toward taking equity stakes in U.S. financial institutions.

In the report, however, Treasury acknowledges that it is not easy to assess the impact its equity investments in banks have had. Comparisons among individual financial firms are difficult and it is hard to keep track of the allocations of its funds within a given institution.

"Nonetheless, Treasury is working with the banking regulators to develop appropriate measurements and Treasury is focused on determining the extent to which the [Capital Purchase Program] is having its desired effect," the report said.

Institutions participating in the TARP's Capital Purchase Program include JPMorgan Chase (JPM), Bank of America (BAC), Goldman Sachs (GS), Morgan Stanley (MS), Citigroup (C) and Wells Fargo (WFC).

The Treasury stressed in its report that the TARP has significantly diminished the risk of failure for systemically significant financial firms. Since September, the financial system has been rocked by the government takeover of Fannie Mae (FNM) and Freddie Mac (FRE), the purchase of Merrill Lynch by BofA, a bankruptcy filing by Lehman Brothers and an $85 billion line of credit to ailing insurance giant AIG (AIG).