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(WASHINGTON) Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke yesterday waged a stout defence of their management of a US$700 billion financial bailout just one week after the administration abandoned the original strategy behind the rescue.

Focusing the programme on infusing billions into banks - and possibly other types of companies - to pump up their capital and bolster lending to customers was deemed a faster and more effective approach to stabilising the financial system than buying rotten assets from financial institutions, the centrepiece of the original plan, Mr Paulson said.

Buying those toxic debts would have required a 'massive commitment' of the bailout money, Mr Paulson said in testimony before the House Financial Services Committee. As economic and financial conditions quickly worsened, it became clear that the first instalment of the money - US$350 billion - for that purpose 'simply isn't enough firepower,' he said.

It's crucial that the administration be nimble in assessing changing conditions and adapt the bailout strategy accordingly, the Treasury chief said. 'If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract,' Mr Paulson said.

Last week, Mr Paulson changed course and said the government would not use any of the US$700 billion to buy bad assets from banks. That had been the focus of the plan Mr Paulson and Mr Bernanke originally pitched to lawmakers.

Going forward, the ability of Treasury to use the bailout programme for capital injections and to take other steps to stabilise the financial system - including any actions needed to prevent the disorderly failure of a major financial institution - 'will be critical for restoring confidence and promoting the return of credit markets to more normal functioning,' Mr Bernanke told the panel.

Mr Paulson said the department will focus on rolling out a capital injection programme to pour US$250 billion into banks in return for partial ownership stakes in them. Treasury on Monday confirmed that it supplied US$33.56 billion to 21 banks in a second round of payments.

That followed the initial US$125 billion allocated to nine of the country's largest banks, and brought the total earmarked payments to US$158.56 billion.

Treasury also will search for new ways to boost the availability of car loans, student loans and credit cards, which have been become harder to get due to the credit crisis.

Specifically, the department along with the Federal Reserve, is exploring using some of the bailout money to bankroll a new loan facility designed to help companies that issue credit cards, make student loans and finance car purchases.

Mr Paulson said he expected putting up only a 'relatively modest share' of the bailout money for this facility.

He rejected using the government's financial-rescue programme as a 'panacea' for economic difficulties, clashing with lawmakers who want the funds to help beleaguered homeowners and carmakers.

'The rescue package was not intended to be an economic stimulus or an economic recovery package,' Mr Paulson said.

The US$700 billion Troubled Asset Relief Program was designed to stabilise financial markets and the flow of credit and 'is not a panacea for all our economic difficulties.' - AP, Bloomberg