Image: Neel Kashkari
Manuel Balce Ceneta  /  AP
Neel Kashkari, who heads Treasury's Office of Financial Stability, on Monday said "lending won't materialize as fast as any of us would like."
updated 12/8/2008 6:53:00 PM ET 2008-12-08T23:53:00

The government has just $15 billion left to spend from the first $350 billion pot of financial bailout money, the Treasury Department announced Monday.

The department said $335 billion has been allocated from the first half of the $700 billion program, which was enacted on Oct.

3. The information was contained in a report to Congress.

Treasury Secretary Henry Paulson, who is overseeing the program, is weighing tapping the second $350 billion. The main goal of the program is aimed at getting financial institutions to lend money more freely again, which would help revive the economy.

Of the $335 billion spoken for, $250 billion has been pledged for capital infusions to banks. In return, the government receives partial ownership stakes in the financial institutions.

Another $40 billion was provided to help bail out insurance giant American International Group, and an additional $25 billion was part of a rescue package for Citigroup Inc. Of that piece, $20 billion was in the form of a fresh capital infusion to the New York City-based bank and $5 billion to absorb potential losses as part of the government’s guarantee of certain risky assets held by Citigroup.

Separately, $20 billion was provided to the Federal Reserve for credit protection as part of a new program to boost the availability of consumer loans.

On Capitol Hill, lawmakers have blasted Paulson for his handling of the $700 billion package, complaining that his shifts in strategy sent confusing signals to the public and Wall Street, and hurt confidence in the government’s ability to deal with the crisis.

Paulson has defended his management, including his decision to officially abandon the original rescue strategy: buying rotten mortgages and other bad debts from banks to free up their balance sheets and spur lending.

“Although financial conditions remain far from normal and many challenges remain, greater confidence in financial markets and financial institutions will contribute importantly to the recovery process,” the report said.

Even as the government prods banks to use the capital injections to step up lending, it is crucial that banks act responsibly, a top Fed official said.

Major Market Indices

“We want banks to be willing to deploy capital and liquidity, but they must do so in a responsible way that avoids past mistakes and does not create new ones,” Donald Kohn, vice chairman of the Federal Reserve, said in a speech.

Lax lending standards figured prominently into people getting home loans that they couldn’t afford during the housing boom. When the housing market went bust, foreclosures surged and mortgage-related investments soured, leading to broader financial and economic troubles.

Neel Kashkari, who heads Treasury’s Office of Financial Stability, on Monday said “lending won’t materialize as fast as any of us would like” and struck a similar chord as Kohn. Financial institutions “must not repeat the poor lending practices that were the root cause of today’s problems,” Kashkari said.

Federal auditors last week called for tougher monitoring of the $700 billion bailout program to ensure that banks limit their top executives’ pay and comply with other restrictions.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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